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Market looks positive on IT, Auto and Pharma space

Market looks positive on IT, Auto and Pharma space 1

Sachin Trivedi, Senior Vice-President and Head of Research at UTI Asset Management Company says news around COVID-19 vaccines and strong corporate earnings, apart from low bond yields lifted the market mood in recent weeks.   

Markets generally tend to be forward looking and discount near term news, unless there are surprise events. Therefore, post deep correction in March 2020, it started to focus on economic recovery path, which was aided by stimulus packages. Further, possibility of COVID-19 vaccines in near future, low domestic and global bond yield and better than expected profit performance of corporates have also supported this move.  Broader market indices looks expensive when looked at it from an earnings perspective, but these earnings are depressed due to the pandemic. On price to book matrix, markets are in fair value range.

Mr. Trivedi added that with Joe Biden-led Democrats winning US elections, there are some impact that could be faced by Indian market. Under the new administration, it is expected that there may not be any major economic policy change, given that the Congress would be split. Therefore, on areas like immigration and trade there may not be any radical change. However, key forces of de-globalization and diversification of supply chains will remain intact and provide India opportunities in domestic manufacturing.

Mr. Trivedi says that corporate earnings performance for the second quarter of FY21 has been generally ahead of the expectations. Many sectors have participated in this positive surprise. This performance has come on the back of better sales and volume performance and tighter cost controls exercised by the companies. Some of this cost rationalisation could be structural, to which investors can start ascribing higher value. Post pandemic, shift of business from unorganised (small players) to organised (listed/ larger) players may have just got accelerated. We like companies benefiting from this trend. Further, we remain constructive on private sector financial space which are adequately capitalised and enjoy benefit of low cost of deposit. We also remain positive on companies in IT services, Automobile and Pharma space.

It may be premature to conclude that recent outflow from equity MFs would be the trend going forward. In tougher economic environment, it is natural for investors to temporarily alter cashflow allocation. However, even in current times, SIP flows have been largely stable, suggesting investors are not panicking. Longer term data clearly suggests that equity, as an asset class has not just beaten inflation but has outperformed other asset classes. For investors to engage in direct investing is not just time consuming, but outcomes could be more risky compared to mutual funds. For selecting funds (Active /Passive), investors may consult an advisor or may do more research, and depending on the investment horizon they may allocate money.    

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