Shibani Kurian on 3 red flags to watch out for in mkt

Shibani Sircar Kurian, Senior EVP, Sr. Fund Manager & Head -Equity Research, Kotak Mahindra AMC, says a lot of the growth that we have seen so far has been driven by premiumisation or at the top end in terms of demand while mass consumption has been lagging and therefore how soon does mass consumption pick up and start tracking the growth that we have seen at the top end would also have a bearing in terms of how markets pan out.



Now going ahead and deeper in 2024 we want to understand what is the house view coming in especially after the monetary policy where we did not see any changes, beginning of the year we were expecting or Fed was expecting to cut down rates starting from March but that also looks highly unlikely looking at the kind of data coming in from the US markets. What is your house view and how are you looking at equity markets right now?

Shibani Sircar Kurian: So, if you look at equity markets, we just take a step back and we see that three key factors have been driving Indian equity markets. One is the belief that policy continuity will be there and therefore the overall work that has been done in terms of spurring investment-led growth.

The second factor has been corporate earnings and we are in the midst of the Q3 FY24 corporate earnings season which has been progressing fairly well. And the third has been liquidity which is essentially the domestic flows which continue to be strong. Now, as you mentioned in terms of the RBI policy it is more of status quo and our belief is that while inflation continues to be trending lower and RBI expectation is that inflation would come off next year as well, the target inflation rate for RBI is 4% and hence from a policy perspective RBI would possibly take cues from what the US Fed does and then look at any change in terms of the policy rate as such. So, overall equity markets if you look at while corporate earnings have been strong, we have to also take cognisance of where valuations are in the markets.

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In this sort of a perspective if you look at largecaps, the risk reward in terms of valuation still remain fairly favourable. Earnings growth remains strong and largecaps are trading at a slight premium to their long-term averages. Mid and smallcaps continue to deliver earnings but trading at significantly higher than long-term averages. So, our preference in this market is largecaps over mid and smallcaps.

If you are someone who is very well established and knows the market, you can actually look at a sector fund based on the kind of announcement and thrusts that the government showed in the interim budget speech.

Shibani Sircar Kurian: Where we are positive on is the auto and the auto ancillary space and fourthly in terms of building material and real estate. So, these are some of the domestic facing sectors where we continue to be positive.

Looking at the SIP numbers, it is very important to understand the kind of trajectory coming from tier II and tier III. As per your house experience, although we have seen a very high outflow in the month of December, do you think the market volatility is something that an investor needs to keep in mind if you are investing in SIP? You are participating in all levels of the market obviously but then you need to rebalance your portfolio and as suggested by you, the house view is more towards largecaps, is it time for that for an SIP investor to consider?

Shibani Sircar Kurian: For an SIP investor, the best part is that you are investing as you correctly mentioned at all levels of the market. So, keeping in mind your overall asset allocation you should continue where you are in terms of your SIP investments. If you look at our overall asset allocation bucket, we should be somewhat neutral in terms of equity allocations given the fact that we have seen a significant run-up in equities and therefore some amount of consolidation of volatility cannot be ruled out in the near term even while the medium-term outlook remains strong.

As we were earlier discussing as well in terms of asset allocation some tilt towards largecap over mid and smallcaps but if you have SIPs running, then obviously from an SIP perspective, the SIPs make sense because you are investing across market volatility and market time period so that is pretty much taken care of.

We are going to have the general election in a few months. As far as our markets are concerned, what are red flags in your mind?

Shibani Sircar Kurian: There are a few key risk factors and obviously from an equity market participant always keep an eye out for risks that can emerge. One is that geopolitically there is a considerable amount of tension and that geopolitical tension does not seem to be coming off and therefore keep an eye on that in terms of its impact from a market perspective.

The second is the global interest rate cycle, as in the beginning of the conversation we were discussing on monetary policy as well, the market seem to have factored in that Fed will start cutting rates and then we saw Fed commentary which kind of has resulted in market pushing out the Fed rate cut or the pivot of the Fed as such, so the monetary policy cycle is something that would have a bearing in terms of equity market and valuations across the world.

The third factor for us specifically is corporate earnings. So far so good. In fact, even in this quarter, if you look at the corporate earnings project at headline level Nifty continues to deliver in line with expectation and therefore earnings growth for FY24 and 25 seem to be fairly intact as of now in terms of earnings expectation.

These are three key factors and risks that we would continue to watch out for and finally if I may just end by saying that a lot of the growth that we have seen so far has been driven by premiumisation or at the top end in terms of demand while mass consumption has been lagging and therefore how soon does mass consumption pick up and start tracking the growth that we have seen at the top end would also have a bearing in terms of how markets pan out.

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William Murphy

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