Mukherjee said the the market's bigger worry right now is macro and that is evident from the way in which it has been ignoring strong quarterly performances from index heavyweights like TCS and Hindustan Unilever.
Shares may consolidate in the medium term, but there is more pain ahead for the market, says CNBC-TV18 Consulting Editor Udayan Mukherjee in an interview with Moneycontrol Editor Santosh Nair.
He said the mid and small cap stocks have been in a market for more than six months and much of the price damage had already been done. Yet, it was hard to call a bottom.
"Bear markets are cruel; they will give you a pullback rally and you may think we have bounced off a bottom. But it will inevitably go there, test that bottom, pierce that bottom and then sometimes there is the climactic sell-off which flushes out the last bit of price correction. That is very painful, and that has not happened yet," he said.
Mukherjee said the market may have formed some kind of an intermediate bottom at 10,200 on the Nifty and that shares could consolidate in the medium term using that level as a base.
He said the market's bigger worry right now is macro and that is evident from the way in which it has been ignoring strong quarterly performances from index heavyweights like TCS and Hindustan Unilever.
"The market is also telling you that valuations have become very expensive in many pockets," Mukherjee
He said concerns over macro factors were leading to a de-rating of the price-earnings multiples.
"Till a few months back, the market was focussed on earnings recovery. But that micro-focus has been replaced by a macro and global focus, and that has become the dominating impulse," Mukherjee said.
On TCS, he said the problem was not about the company's performance.
"Over the past few months, valuations had run up so much that the stock is now trading at 22-23 times one year forward earnings, which is about the highest that TCS has traded at," he said.
On HUL, Mukherjee said despite the strong volume growth in the September quarter, there were concerns about margins and high valuation.
"The biggest problem is that the stock is trading at a PE multiple of 50. In the current bearish framework, it takes a lot of courage for an investor to buy anything at such a valuation," he said.
Mukherjee advised caution on shares of non-banking finance companies as well.
"NBFCs have a long road ahead of them," he said, adding that much of the price damage has already happened and current valuations reflect the new reality of the sector.
"Even so, why would you buy NBFCs when you know that the overall growth trajectory is going to come down, their margins will be under pressure because of higher funding costs and generally liquidity will be tight," he said.
Mukherjee said that any pullback in NBFCs will be used by investors to shift to some of the quality names among private sector banks."There is a feeling that over the next 1-2 years, private sector banks will be able to reclaim some of the market share they lost to NBFCs because NBFCs are beset with problems of their own," he said.