Return expectations need to be moderated, says Kotak AMC CIO Upadhyaya

Kotak AMC CIO said investors should consider market's long-term behaviour and not focus only on strong returns of last four years

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Investors need to moderate their return expectations from the equity market and should be careful before taking positions, Kotak Asset Management Company's Chief Investment Officer (CIO)-Equity, Harsha Upadhyaya said, asserting that despite the positive growth outlook, the valuations remain higher.

 

The slowing economy and corporate earnings, as well as higher valuation, make it essential to lower average expectations from equity returns, he said.

 

Upadhyaya emphasised that investors should not focus solely on the strong returns of the last four years but consider the market's long-term behaviour.

 

Describing the current year as one of consolidation for corporate earnings, Upadhyaya predicted marginal earnings growth by the end of the year. He, however, expects earnings growth to pick up from next year onwards, driven by festive demand, good rainfall, and increased government spending.

 

"Sequentially, things are likely to be better because of the festive demand and good rainfall that we have seen. We should see consumption trends picking up. Also, on the investment side, the government will be forced to spend more as compared to the first half, and even if the majority of that gets onto the ground in terms of new orders and execution, that should help all the sectors that are closely linked to economic growth,” he said.

 

Kotak Asset Management Company recommends going overweight on largecaps within equities, as the correction has been slightly higher than in mid and smallcaps.

 

After the recent market selloff, Upadhyaya noted, that many stocks within the BSE 500 were still trading at elevated valuations. He advised investors to be cautious in selecting sectors and stocks to create sustainable wealth.

 

"A lot of that froth has moved out of the market, but still most companies are trading at high valuations. Some of these could be justified, given higher growth. But broadly, when you look at the markets, you have to be very careful in selecting sectors,” he said. 

 

(Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt )