Markets in middle of the pendulum, neither greed nor fear dominates: S Naren

No room for big bets: S Naren says markets aren’t dirt cheap

• Indian equities are in a balanced phase, showing neither panic nor euphoria
• Non-ferrous metals, oil & gas, and public sector banks see earnings improvement
• FMCG, IT sectors lag; railways cautious due to high valuations

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As Indian equities move through a phase of consolidation amid elevated valuations, uneven earnings recovery and global uncertainty, market signals are increasingly pointing to balance rather than extremes. In an exclusive conversation to Moneycontrol, S Naren, Chief Investment Officer at ICICI Prudential AMC described the current phase through Howard Marks’ pendulum framework: one that explains market cycles as swings between excessive pessimism and excessive optimism.

“Actually, we are in a phase, what Howard Marks says: a pendulum which can go from extreme bearishness to extreme bullishness. We are somewhere in the middle,” Naren said.

Despite sharp corrections in pockets and strong returns in others, markets are showing neither panic nor euphoria. “So, I mean, we are not in a phase where across equity market, there is either euphoria or fear. There is neither at this point,” Naren said.

For investors waiting on the sidelines, he cautioned against going all gung-go on equity but also suggested that it is not the time to remain on the edge either. At this time, Naren underlined that some pockets are seeing meaningful improvement.

“Actually, we are seeing good turnaround in earnings in non-ferrous metals. We are seeing reasonable returns in oil and gas. Even most of the public sector banks have delivered good returns. The question is whether all the sectors which have delivered good returns, they are going to show big growth from here or not going to show big growth from here," he said.

On the other end of the spectrum, several large sectors continue to struggle with growth.

“If you look at FMCG, growth is not there. If you see IT, growth is not there. These are sectors which have underperformed meaningfully,” Naren said.

Despite a sharp increase in defence capital expenditure in the recent Budget announcement, defence stocks corrected, suggesting that expensive stocks are struggling to absorb good news. Railways, too, remain a cautious call. “The valuations are also high and the growth is also not as good as some of the other sectors,” he said. “So, we aren't focusing on railways at this point.”

However, he added that markets will reward consistencies going ahead, seeing selective opportunities in autos and banks going ahead.