Period of easy returns now over, taper expectations: Motilal Oswal

The period of easy returns, where a rising tide lifts all boats, is likely over, according to Motilal Oswal Private Wealth. In a recent note, the wealth management firm highlighted the likelihood of a moderation in corporate earnings growth in the coming years.

 

“Markets have witnessed intra-year drawdowns of 10 per cent or more in 22 out of the last 25 years, and investors should always be prepared for such sharp bouts of volatility. The period of easy returns, in our view, is over. We reiterate our stance of focusing on companies with strong businesses showing sustainable growth rather than chasing market trends,” said Ashish Shanker, managing director and chief executive officer, Motilal Oswal Wealth.

 

Earnings growth is projected to moderate to a 12-14 per cent compounded annual growth rate (CAGR) over financial year (FY) 2024-2026, with some interim but short-lived slowdown, as seen in the second quarter of FY25, the firm noted.

 

“After a strong rally over the last two years across market caps, future return expectations should be moderated in line with the earnings trajectory,” it said.

 

The recent correction in the equity market has brought largecap valuations close to their long-term averages, the report added. However, midcap and smallcap valuations remain relatively expensive.

 

Shanker advised investors to take a staggered approach when investing in equities—three to six months for largecap and multicap strategies and six to twelve months for midcap and smallcap strategies.

 

Equity-oriented hybrid strategies can also be considered for lump sum investments, he added.