With the stock market losing over 11% in the last three months, most of fund managers believe that the equity valuations have dropped to fair to undervalued zone, a survey said.
"Most of the fund managers believe that the equity market valuations have come to a fair to undervalued zone. With more than 10% correction in the last three months since the previous survey in May 2011, most fund managers believe that valuations have turned more favourable," the survey by ICICI Securities said.
According to most of the respondents, European sovereign crises and higher crude oil prices remain a major global risk to the Indian markets.
Most of the fund managers have adopted a neutral to bearish view for the short term due to global concerns like European sovereign crises, higher crude oil prices and slow US economic recovery, the survey said.
In terms of market return for the rest of the calendar year 2011, global fund mangers are more bearish compared to domestic fund managers, the study noted.
Earnings expectation has been revised downwards in the last three months from 15-20% to 10-15% for 2011-12 as well as 2012-13, it said.
Most of the fund managers believe that allocation towards equity markets at current levels should be increased with an investment horizon of one year and above.
On sectoral basis, banks, FMCG and pharma continued to be the most preferred sectors, according to the survey.
Telecom has gained significantly as a preferred sector in contrast to the previous survey where it was among the least preferred zone, it added.
Besides, IT which was one among the most preferred sectors in the last survey has lost its sheen due to concerns over economic recovery in developed markets, it noted.
Opinion were divided over large-caps and mid-caps. Due to the volatile environment 57% of the fund managers prefer large-caps as compared to 38% in the previous survey.
With a cautious outlook for equity markets in the short-term, a higher number of fund managers believe that Indian debt markets may be a better investment option with an investment horizon of three to four months.
The Fund Manager Survey is conducted on a quarterly basis. The previous survey was done in May.
