 "Indian equities likely to consolidate in the near term: Sohini Andani")
The growth outlook for India has become subdued as the recent measures to curb black money is likely to impact growth negatively in the short term, says Sohini Andani, fund manager, SBI Mutual Fund. In an interview with Ashley Coutinho, she says the outlook for earnings upgrade has become more subdued. Excerpts:
What is your outlook for Indian equities?
The growth outlook for India has become subdued as the recent measures to curb black money is likely to impact growth negatively in the short term. This would impact earnings growth recovery in FY17 and probably to some extent in FY18 too. However, the measures should positively impact market in the long-term. Globally, the interest rates are likely to move up which would impact the FII flows negatively. Both the events put together are likely to result in some consolidation in the Indian equity market.
What is your current take on valuations? Has it become more difficult for fund managers to spot opportunities, particularly in the midcap space given the rich valuations?
The current valuations are slightly above the long-term average. Till we see improvement in the corporate earnings growth, it would be difficult for valuations to move up from the current levels. Midcap valuations are above the long term averages and are likely to see some correction, especially if the growth takes time to revive. The July-September earnings have been a mixed bag with both positive and negative surprises but, overall, the outlook for earnings upgrade has become more subdued.
How do you see fund flows into emerging markets (EMs) such as India over the next six to 12 months?
The probability of interest rates moving up in the US market has risen post elections as the President elect has promised fiscal expansion to boost growth through infrastructure investments. The impact on the EMs and India would be determined based on the outlook on the extent of interest rates moving up.
Mutual funds have remained net buyers of equities for most of last year. Will the trend continue?
This is because domestic savings have flowed to equities during the last couple of years based on the above-average returns during the last 3-4 years. As the share of financial savings in the total savings increases, mutual funds should remain buyers of equities in the long term. In the short term, the flows to the equity mutual funds would get impacted by near-term volatility in the economy and adverse impact on growth due to recent measures to curb currency in circulation and the outlook for rising rate in the US.
Which sectors are you bullish on?
The sectors focused on development agenda like infrastructure, cement and agrochemicals look interesting. The defensive sectors like pharma and IT, where valuations have corrected meaningfully also have better outlook than the broader market. The over-owned sectors in the consumption space may see subdued outlook due to demanding valuations.
