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Equities have fallen, but mutual fund houses’ models indicate we aren’t out of the woods yet

Fund houses’ internal indicators say that equities are not overvalued anymore but caution against investing aggressively in a single asset class.

June 14, 2022 / 09:11 AM IST
WPIL: WPIL bags order from West Bengal government for execution of turnkey project. The company has received an order from the Government of West Bengal for execution of turnkey project comprising commissioning of a clear water reservoir and a ground level reservoir. The contract is valued at Rs 430.87 crore and the same will be completed over a period of 24 months.

WPIL: WPIL bags order from West Bengal government for execution of turnkey project. The company has received an order from the Government of West Bengal for execution of turnkey project comprising commissioning of a clear water reservoir and a ground level reservoir. The contract is valued at Rs 430.87 crore and the same will be completed over a period of 24 months.

On Monday, the benchmark Nifty50 index fell by 427 points, or 2.64 percent, over Friday’s close. That marks a fall of 9.1 percent so far this year. The Nifty 500 index, which represents the broader market, is down 10.53 percent this year, indicating that as always the mid-and small-cap stocks are hit harder. Among sectoral indices, the Nifty IT and Nifty Realty indices have fared the worst with losses of 27.87 percent and 19.89 percent, respectively. Though investors are continuing with their systematic investment plans, many have been waiting on the sidelines to put in lump-sum amounts to take advantage of the crash.

But are equity markets attractive enough just yet? Many distributors and financial advisors rely on sophisticated tools used by fund managers to assess how far the markets can fall from here on. And if equity markets are undervalued already.

Are the valuations attractive?

According to The Navigator, a quarterly report released by DSP Mutual Fund, valuations are no longer frothy. “Only 20 percent of NSE 500 stocks are above their 200-day moving average, as compared with a long-term average of 50 percent. Markets have usually turned upwards at such low levels,” the report says.