market strategy: ETMarkets Smart Talk: This fund manager remains underweight IT for 2H2022, finds the energy sector attractive

“The IT sector underperformed due to higher starting valuations and lofty growth expectations, which are now correcting,” says Vinay PahariaInvestment Director, CMA Syndicate.

In an interview with ETMarkets, Paharia said: “The power sector had underperformed in the previous two years and has therefore done better in CY22 so far”, Edited excerpts:

The Indian market hit a fresh 52-week low and then we saw a rebound broadly in line with US markets. What should investors do — time to get cautious or buy fear?
In our assessment, while the market is trading at a discount to its current fair valuation, the current macroeconomic situation remains highly volatile.

Growth in aggregate domestic demand appears to have started to slow, while supply-side bottlenecks persist.

This has led to higher inflation, which is a thorn in the flesh of global political and monetary authorities.

Thus, most central banks are now taking aggressive steps to tighten their monetary policies, and some are also resorting to quantitative tightening.

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This should increase the cost of equity and reduce short-term liquidity, which is likely bad news for risky assets such as stocks. The short-term outlook therefore remains cautious and highly volatile.

However, medium-term economic growth is expected to rebound to moderate levels and may return to our historic growth rate.

Therefore, we expect moderate growth in the fair value of Indian companies and, as the markets are trading at a discounted valuation, the expected returns on equity assets could be higher than the growth in fair value over the medium term.

We remain bullish on equities as a medium to long-term asset class.

We will complete the 6 months of 2022 and it has been a volatile journey for investors. What is your outlook for the markets for the rest of the year? Will we hit 14K first and then bounce back?
As previously stated, we expect short-term market volatility to persist. It is impossible to accurately predict what may happen in the markets next year.

However, over a longer period, we have observed that the markets follow the fair value and that the fair value of companies as a whole follows the growth of nominal GDP.

Given that we are optimistic about India’s growth over the medium to long term, we remain optimistic about the outlook for equity markets over a similar time horizon.

Sector-wise, the real estate and IT sectors have fallen more than 20% so far in 2022. What is weighing on these sectors and will the weakness continue? ? Top-tier stocks worth buying?
The real estate sector largely depends on the availability of cheap capital for its growth. As the outlook for interest rates has hardened, the outlook for real estate should weaken.

The IT sector underperformed due to higher initial valuations and lofty growth expectations, which are now correcting.

We remain underweight in the information technology sector as the risk/reward ratio for this sector seems low, according to our assessment.

Power sector outperforms so far in 2022 – what drove the price action?
We have seen market valuations revert to the mean over the past six months. The electricity sector had underperformed in the previous two years and has therefore done better in CY22 so far.

War, inflation, yields, rising rates and crude oil remain a relevant bane on equity markets for the rest of 2022 – how should investors prepare their portfolios?
Investors should avoid investing directly in stocks and instead consult a qualified financial advisor to help them navigate the volatile market environment.

They must absolutely avoid having unrealistic return expectations and must invest for a minimum time horizon of 5 years while investing in stock markets.

If someone is planning to invest Rs 10 lakh in the second half of 2022, what should be the ideal investment strategy?
Investors should consult a qualified financial advisor to help them create a personalized financial plan for making investment decisions.

Do you think FII outflows could stabilize or reverse in H2 2022? There are talks that retail investors might not be able to keep investing money if the economy experiences a slowdown or a loss of jobs?
The flow of money is like water, which finds its own level. FII flows will return if they believe India’s relative return expectation is higher.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)


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