Current valuations don't look too expensive: Abhay Laijawala

How do you find stock valuations now?

The benchmark BSE Sensex is currently trading at 16.6 times of its one-year forward earnings, not very expensive, given the expectations of policy overdrive in an approaching 11 months' election-free window and an expected corporate earnings growth of around 16 per cent per annum over FY15-16. Additionally, the current valuations do not look too expensive compared with the past five years' average of 15.6x, a period when India witnessed one of the most severe bouts of economic downturn, between 2010 and 2012.

Which sectors are you positive on?

We are overweight on banks, energy, materials and consumer discretionary on the back of a faster GDP (gross domestic product) growth and recovery in investment demand.

Which sectors are you negative or underweight on?

Consumer staples and telecom.

The previous boom was led by construction, infrastructure, real estate, capital goods and power stocks. Which sectors are likely to be leaders this time?

Domestic cyclicals will likely be the market leaders in economic recovery. In the initial phases, we think energy, consumer discretionary and select banks will lead the way.

In the latter phases, when the government's initiatives on unclogging of investments start bearing fruit, capital goods, construction and infrastructure should take on the baton of leadership, along with other cyclicals.

Mid-cap stocks have been leaders in the recent rally. Are they still attractive or would you recommend investors to move to large-caps?

While mid-caps have indeed outperformed the large-cap indices, we believe that as the economy improves and markets remain supported by the government's policy and administrative initiatives, quality mid-cap stocks will continue to provide strong returns.

Abhay Laijawala, MD & head, research, Deutsche Equities India