“The volatility could continue for some time. The key variables to track will be inflation, both in India and globally. If inflation does start to come down or peak out, especially given the fact that we are seeing early signs of commodity prices correcting, that will be the key trigger point for markets.”
“The first quarter of FY23 will be a key to watch out for in terms of earnings estimates for the year, where some of the margin headwinds will play through,” says Shibani Sircar Kurian, Senior EVP, Fund Manager & Head -Equity Research, ESG Coordinator, Kotak Mahindra Asset Management
I am sure you are going to say do not stop SIPs, do not panic, be systematic, be disciplined and continue investing in this decline?
Yes, absolutely. Equity markets go through cycles but if you look at trends over a longer term basis, the cycles seem very small and insignificant in the larger scheme of things and therefore we are telling our investors to continue with a disciplined approach, focus on asset allocation and look at equities from a medium to long term; not try to time the markets and give time to the markets. That is the mantra that we have really worked with.
What could be the trigger point which would tell us that markets are either nearing a bottom or they have bottomed out?
We believe that we are still some time away from the classic panic bottom. The volatility could continue for some time. The key variables to track will be inflation, both in India and globally. If inflation does start to come down or peak out, especially given the fact that we are seeing early signs of commodity prices correcting, that will be the key trigger point for markets.
In the Indian context, we also believe that we have had two years of great earnings trajectory where earnings revisions were always upwards. However, now given the kind of sentiment that we are seeing in the markets as well as the interest rate, inflation scenario, there are possibilities that the first quarter of FY23 will be a key to watch out for in terms of earnings estimates for the year, where some of the margin headwinds will play through.
So yes, in the near term, we are possibly not at the bottom. However, market volatility will continue. Also remember that when you look at Indian markets in a relative context, while absolute valuations have come off closer to historical average, relative premia of India to the emerging markets is still higher than historical averages.
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What we have seen is that when one looks at individual stocks – and we were doing this analysis for BSE 500 companies – almost 60% of the companies have corrected at least 30%.
So at a stock level, slowly there are opportunities that we are evaluating. However, we have to be careful about the companies that we choose in this environment. Our belief is that this year will definitely be a year of bottom up stock picking and not as broad based as what it was in the last couple of years.
Why would any company say we will consider a buyback and then withdraw the announcement on buyback or going ahead with one?
Going ahead with one is part of the overall capital allocation policy and return to the shareholder. So, clearly that has been one of tools that cash rich companies have adopted in terms of giving back to the shareholder and it is a prudent capital allocation policy. I really would not be able to comment on what has happened and why would a company withdraw from a proposed buyback announcement.
Usually when one looks at capital allocation of companies, one thing is how they return money back to the shareholder either in the form of dividend or buybacks. The second is what are the overall thought process or overall expansion plans, how much money would need to come back into the company and third could be whether they have any acquisition plans as well.
It would be a combination of all these factors which determine what the overall capital allocation policy of a company would be. It is very difficult to comment on this particular instance.
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