“We did get a little bit of that regulatory scare as well and that probably also contributed. But I think that is exactly what you are probably going to get up until the time you have a situation where the broad domestic economy is expected to do well, I doubt if you will probably get very-very punchy corrections,” says Taher Badshah, CIO, Invesco Mutual Fund.

It has just been an extraordinary last couple of weeks. Big selloff in the month of March, big recovery after that. In the month of March when markets fell, everyone thought that this was an overdue correction. But the way markets have recovered, it has surprised everybody.
I think we have been maintaining this outlook, I mean the backdrop, especially for the broader market which has been under the radar where there was an expectation that there was an excess which had been built up perhaps we did see a decent correction of a certain magnitude, probably about 7 to 9 odd percent at the indices level and I think that is what you would probably get in an environment where the background as far as earnings and the overall macro construct is still reasonably positive. We did get a little bit of that regulatory scare as well and that probably also contributed. But I think that is exactly what you are probably going to get up until the time you have a situation where the broad domestic economy is expected to do well, I doubt if you will probably get very-very punchy corrections.

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So, all those who say that valuations are stretched, be careful at these levels, you are buying something above historical averages. Would you say that all the naysayers will get it wrong again?
Look, like I said, we are in a situation where earnings drivers are reasonably intact. Of course, you cannot expect a situation where markets will just continue doing a check on ground reality and on earnings from time to time and I think that is what we are probably going to be encountering probably in the next upcoming couple of months as we get into the thick of the results season.

So, there will be a reality check and you will have to probably assess if earnings are coming through in the way the market expects and are extending themselves from the point of view of longevity into maybe not just the balance of FY25, but even in FY26.

So, I think those assessments will happen at a periodic level. But if that trend is in the right direction and if we have comfort with regard to that then I think we still are not in a stage where at an aggregate basis valuations are extremely frothy

As of now the expectations are that we can still grow. Let us say the narrow market earnings are about 13% to 15% over the next two years and probably the broad market does perhaps a couple of percentage points higher than that.
So, I would like to think that there will be pockets in such kind of a market where things will overextend and markets will have that tendency to go a little more than the underlying businesses and then they will revert back to the mean at some stage. So, I think we saw a little bit of that come through in the last few weeks and that is basically what was the opportunity. So, what is it that you are anticipating from the earnings this time around, if you could just give us a colour on sectoral expectations because what we saw from auto sales for the month of March, they fell drastically short of expectations.
Yes, so you will see certain pockets where there is expectation which is positive. For example, industrial is clearly an area where there is a decent amount of expectation in terms of delivery both in terms of top line as well as in terms of possibility of further operating leverages starting to show up in many of these businesses.

So, clearly that has been an important pocket of the market. Important segment of the market in the last two years and obviously from quarter to quarter the expectations out there are reasonably important.

On autos, as you mentioned, yes, I mean once again it is a divided kind of space. There will be expectations around some of the two-wheeler and passenger vehicle companies which at an aggregate level while March probably has not been as great as what the Street expected. But by and large, I think as a quarter they have been faring reasonably well.

So, there will be some positive expectations out of there, not as much of expectations perhaps from the four-wheeler pack to go with. I think there is not as much of an expectation on the other hand from many of the low- to mid-end consumer discretionary parts of the market.

We will have to see as to how they deliver versus those very muted expectations. On the other hand, there is a fair bit of expectation out of things like pharma, real estate. They can probably perhaps even positively surprise the market.
So, I think technology, on the other hand, we all know it is going to be a slow process, slow grind upwards as we see it. But again, there too market will start to kind of take as much of gleanings that you can get from the results and the commentaries.

So, amongst the sectors where you are anticipating positive earnings, how much of it would you say is in the price already and where do you think that there is scope for outperformance more than what the market is anticipating?
It is a little hard to say, you have to wait for corporates to deliver and try and see if some of the expectations of the market are met or perhaps even exceeded and I think there have been companies in certain parts of the market, certain sectors which have been constantly delivering not just on expectations but probably even beating expectations. They are few and far between, but nonetheless I think that is what the market will start to kind of try and decipher from these results.

And more importantly, the commentaries also will probably matter. So, I would like to, like I said, some of the more positive expectations are from the industrial space, from the capital goods parts of the market.

Industrials at a broader level are expected to kind of do well and they probably have that scope to perhaps deliver better at least from the point of view of profitability if not as much from a top line perspective versus expectations.
In banks, I think it will be good if we can probably see expectations being met, that will comfort the market. In some of the non-banking areas is where the expectations are perhaps reasonably high given the stronger trends in the capital market activity.

I think there it will be important for some of these companies to beat expectations.

So, again, that is an area that we probably need to watch. In some of the non-banking financials is somewhere where the expectations perhaps have been little muted in the recent past and we will have to see as to whether do better than that or probably disappoint on that scale as well. So, yes, it is different strokes for different sectors.

I noticed that you have got IT right up there in terms of your top holdings. Are not you worried about what is happening in the real world?
So, not really much has been changing from the point of view. I mean, when we pan it from quarter to quarter, we do not really see much of a decipherable change with regard to outlook or commentaries up until now.

But on the other hand, however, valuations have fluctuated quite a bit along the way over the last three-four quarters. At times, there have been opportunities. Like, for example, we were, for example, in our value strategy, for example, the contra fund, we were materially overweight technology during the early part of 2023, starting late part of 2022 and I think at that time at least valuations were somewhat more like averages compared to the plus two standard deviation that we saw in early part of 2022 as such.

So, I think opportunities did come up at that point in time and then along the way in 2023 we once again saw valuations spike up so without really not much changing at the ground level.

So, we had that opportunity to take some money off the table. Today, we are sitting more of a neutral position or perhaps a little less than neutral as far as IT is concerned at this stage.

So, we will see how it goes but like as I said I mean not really much has actually changed and therefore to that extent I would say at an aggregate level expectations are not really very hot, kind of muted but we will keep observing as to when that inflection point were to probably arrive, at which stage you can probably expect better execution or better conversion of some of the businesses, some of the deals that have been won into top line and that is what essentially the market is looking forward to from IT companies.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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