Corporate earnings growth is set to revive on a combination of good monsoon, falling interest rates and salary hikes for government employees. Yet, it may not be good enough to justify the expensive valuations that most stocks are quoting at, feels Nilesh Shetty, equity fund manager, Quantum Mutual Fund.
“When we look at company valuations even after factoring in strong recovery in earnings, they still looks very expensive,” Shetty said in an interview to moneycontrol.com. “Over the last couple of months we have been selling out of stocks or trimming them,” he said.
In February, Quantum was holding less than 5 percent of its equity portfolio in cash. The cash holding was now risen to a little over 10 percent, Shetty said, adding that the money would be deployed whenever there is a steep correction in prices.
Benchmark indices have been under pressure over the last couple of weeks after a near 30 percent rally from the lows in February this year.
Concerns about an imminent rate hike by the US Fed by December end, and buzz of a banking sector crisis in the Eurozone have tempered the mood in global equity markets of late.
Shetty feels India will fare better relative to other global markets unless the situation at the Indo-Pak border worsens.
“In the near term, we don’t think anything dramatic will happen unless there are some geopolitical tensions like we saw yesterday (referring to the strike),” Shetty said.
He said current stock prices are factoring in a corporate earnings recovery in December and March quarters.
“If that does not happen we are expecting some correction in the market; overall market will remain range-bound,” he said.
Shetty’s fund has a big exposure to ‘consumer discretionary’ companies, mostly two and four wheeler firms.
“We hold largely sectors linked to consumer spending; we also have a large allocation to utility companies, which we picked up last year,” Shetty said.
He is bearish on fast moving consumer goods for nearly 5-6 years now.
“Although they are good companies but the valuations that they are trading at does not make sense to us,” he said.
On banking stocks, Shetty said he would wait for the balance sheets to show signs of improvement before putting big money into them.
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