Whenever earnings pick up, money will start flowing back into India: Swati Kulkarni, UTI AMC
Earnings growth will drive the market, not the govt in power, says UTI AMC's Swati Kulkarni.
This is an election year and the verdict will be out after a little more than two months. What kind of moves can we expect in the market and what is the most prudent way to navigate the markets right now?
The best way is to stay put where you are invested rather than getting disturbed with the short-term ups and downs in the market. The best way is to stay put where you are because ultimately the earnings growth is going to drive the market and irrespective of whichever government is in power, volatility cannot be ruled out.
Let us say if the market expectations are of a stable government and you have a majority government then that could be a kind of a assurance about the policy continuity and the market might give it a thumbs up, but if it is the other way, then there is an anxiety about political stability and also the anxiety coming out of policy related issues and the markets might derate.
These remain only in the near term and if you take a long-term view, it is ultimately the earnings growth which drives the markets. Therefore I would say it is best to sort of concentrate on what your financial goals are and stay put with those goals. Elections may come and go, but the market behaviour is not affected by the election outcome over a three-five year period.
What is the earnings trajectory looking like because Q3 was a mixed bag and do you see any improvement or uptick come by Q4 onwards?
The quarterly earnings have always been volatile and certain sectors tend to bring in that volatility. For example. oil and gas depending on the crude related accounting of the inventory losses or gains, tend to have a big impact on the market earnings.
Again banks have not been contributing in the earnings growth in last two to three years. That was because of the recognition and the credit cost that comes with the asset quality recognition that we have seen.
I guess going into 2020 and 2021, like an earlier years, the expectations are always high but somewhere we will settle down. The rate of downward revisions has kind of abated in recent times. It has come down from as high as 14% downward revisions to single digit now. I guess we would be looking for a earnings growth which may not be in the 20-25% range which the market is forecasting, but something like 14% to 15% could be achievable.
More than that, we have to look at how things are happening at the global front as there is clearly a shift towards emerging markets’ assets now that Fed has decided to stop the tightening that they have gone through.
There is a shift away from dollar-based assets and maybe there is an anxiety on the election front. Money is sitting on the sidelines, waiting to come back to India as an important emerging market that is growing relatively better than the other markets.
Long term., the India growth story definitely has a strong appeal and we would see that whenever the earnings pick up, money starts flowing back into India. We have to wait and watch how the earnings trend gathers momentum going forward.
On valuation, given the earnings trajectory, we are expecting the valuations to be at a fair value zone and we would not expect any major rerating from here. But yes, earnings growth is something we will have to focus on.