After a strong run of around 10 percent since July, the market started giving up some gains in the last few weeks due to sharp currency depreciation following a decline in Argentina peso, Turkish lira on dollar strengthening.
The Nifty and Sensex have corrected about 1.7 percent since August 29, while the BSE Midcap index fell 2 percent.
"The market fall is just a sentiment problem, which is affecting emerging markets (EM). Obviously, countries which have large current account deficit have been seeing a sharp fall in their currencies than few others. So, it is a risk of environment for EM," Ashwini Agarwal, Co-Founder and Partner at Ashmore Investment Management told CNBC-TV18.
Also, strong crude does not really help, given the current account imbalance and higher import bill.
During November-December 2017, the market was too expensive due to broad-based rally but in the first 8 months of 2018, it was a narrow rally, driven by few quality stocks, which are highly expensive now, he feels.
The Midcap index is still down around 8 percent compared to 10 percent upside in the Nifty in 2018.
"This dichotomy has two things, broader market will do nothing and largecaps stocks are way overpriced though these are great companies," he said.
He believes earnings growth in largecaps in June quarter was on account of base effect. "Fundamentals in smaller companies started to pick up, which should continue going ahead. There will be choppiness in smallcaps but stocks are looking far more attractive compared to 8-month ago period."
He said which means macros are worsening but micros are improving, creating opportunities for bottom-up approach.
He feels the dollar strength is a big problem for EM currencies. "Barring Brazil, Argentina and Turkey have major crisis of current account imbalance but the cooling off seems started will unfold rally in EM currencies in next few months."
Dollar appreciation looks unsustainable, he believes.
Agarwal said surprise inspection seen in the past is par for the course for companies in the US as well as India now. "I do not think observations are damaging now as companies are matured enough to meet USFDA expectations except once in a while moment."
Now USFDA 483 is not a huge issue unless there is a quality or data integrity issue, he feels. "We don't see big risk from USFDA now."
In the case of Maruti Suzuki, he feels the stock is looking expensive now, trading at pick multiples. So one should be cautious, he advised.
He said car sales are not very encouraging as huge impact of wages seen previously started tapering off now and Kerala floods also impacted August numbers.
Overall, 2-wheeler sales continued to be robust, he feels.
In the auto, one has to be stock-selective, he advised.
He said M&M
is a great example, the company has a couple of really interesting products. (Disclosure: The research house may or may not hold
position in the stock).