The recent fall in equity markets has more to do with the slowdown in earnings growth rather than any change in economic fundamentals of the country.

The fall in the stock market comes after a steady rally for the last three years fuelled by large retail participation through mutual funds and a buoyant primary market.

Saurabh Mukherjea, founder and chief investment officer, Marcellus Investment Managers said the recent drawdown in equity markets is a healthy sign of valuations getting adjusted to the earnings growth prospects, and it may prolong for a few quarters due to weak demand especially in the mass consumption sectors.

“Having seen huge run-up, we had already booked profit in small and mid-cap segment three months ago and holding cash. We may wait for few more quarters to deploy the funds in the mid-cap stock. However, we remain fully invested in the large-cap space,” he said.

Signs of revival

With healthy balance sheet, the private capital expenditure are already showing signs of revival, and it is only a matter of time that it picks up pace. As private investment picks up, it will create more jobs and drive consumption. However, he said it will take a few quarters and along with revival government spending will boost consumption, he added.

The recent slowdown in the market was due to foreign portfolio investors selling stocks worth over ₹94,000 crore last month and offloading stocks worth ₹23,900 crore this month. Signs of a slowdown in demand in sectors such as automobile and fast-moving consumer goods have raised concerns of an economic slowdown. Many companies missing their earnings estimates in the September quarter have added to those worries, said Mukherjee while releasing his latest book ‘Behold the Leviathan’ authored jointly with Nandita Rajhansa.

‘Be circumspect’

Allaying retail investors concern, he said this is the time to be circumspect, but not to be fearful.

“The Nifty, which is traded at 23 times its forward price-to-earnings ratio, is still well above its long-term average of about 17-18 times. Foreign investors are willing to cut the cheque but are waiting for the right valuation which should be slightly above the long-term average given the growth potential of India,” he added.

Marcellus remains positive on the equity markets in the long-term, but would like the valuations to come down a bit, said Mukherjea. For instance, consumer stocks could get cheaper over the next few quarters, with consumption expected to remain soft.

“Our view to clients, is to hold your horses a little bit, especially in mid-caps. Wait a little bit, we can see the opportunities coming. The country is a fundamentally healthy, buoyant economy,” he said.

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