From the peaks of 2017, the market has had quite a fall so far this year. In fact, the benchmark indices have given negative returns on a year to date basis, which brings the question of valuation correction to the table.
Market experts such as Saurabh Mukherjea believe that while valuations are better than January 2017, the market is still 10-15 percent overvalued. “Sensex at 30,000 could be fair value for the market,” Mukherjea, CEO of Ambit Capital told CNBC-TV18 in an interview. Having said that, he expects this moderation in the momentum to bring in some degree of FII buying, he added.
Does that mean better time or a sense of recovery for the market in the short term? “A trigger for the market to be weak could be liquidity issues, which will be much tighter than what it is now. So, pressure could continue despite a pick-up in the earnings,” he told the channel.
But, on an overall basis, he believes that the Street is in the final phases of a healthy bull market, which could probably last another year. “Recovery in the economy could drive the market through this phase,” Mukherjea said, adding that any lower moves due to ‘political risk’ could be seen as a buying opportunity. As such, he believes that there is no profound link between politics and the markets, atleast not a fundamental one.
Speaking on a sectoral basis, he is looking to bet on those which will have an impact of healthy economic recovery. He likes metals and mining in the space along with CASA-funded banks amid tighter bond market conditions. Mukherjea is also looking to play on rural theme as the government looks to spend on that space in the election-ridden year.
Meanwhile, he believes that the auto space could see some dissection and auto ancillaries could witness pressure, while OEMs (original equipment manufacturers) may remain healthy.
“As inflation rises, ancillaries don’t have pricing power to protect margins and hence are headed for choppy waters,” he said.
On the IT space, he cites weakening rupee and strengthening of economy in US to work for these firms. The focus should be on large-cap IT names as there is still some value seen in marquee names.