Domestic equities are currently flat for the year despite the spike in global volatility
Vinit Sambre, head of equities at DSP Investment Managers, believes that another 5-7 percent correction in the stock market could make valuations palatable for long-term investors.
Domestic equities are currently flat for the year despite the spike in global volatility triggered by Russia’s invasion of Ukraine and hawkish shift in global monetary policy to tame record high inflation.
While Nifty 50 index has seen compression of its price-to-earnings multiples from the record highs of 2021, it is still quoting more than 20 times one-year forward earnings, which is above its long-term average valuation.
“There is so much of uncertainty nowadays that it is difficult to price it into the valuation. Next six months are looking very challenging. Real issue is about most companies facing challenges on growth and input price pressure,” Sambre told CNBC-TV18 in an interview.
The asset manager expects many commodity-consuming companies to see downgrade in earnings expectations as their margins suffer. “There could be good opportunities to look at businesses which otherwise were trading expensively,” Sambre said.
In that vein, Sambre is optimistic about the prospects of the automobile sector that has undergone the deepest lean spell in several decades. Sambre said that it will be difficult for investors to time the recovery in the automobile space but when it comes, it is likely to be sharp.
“In the next seven to eight months, we should see strong recovery in auto and this is why we have large exposure to auto sector,” Sambre said.
Similarly, he is not bearish on the information technology sector in light of the sharp drawdown seen in April following sub-par earnings of Infosys and Tata Consultancy Services for the quarter ended March.
“We are not bearish on IT because we believe that tech expenditure is going to rise,” Sambre said.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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