Where do we go from here? I mean this market is no longer cheap, but this market is not expensive. So, what happens now?
I think you rightly put it. The undertone continues to be quite bullish. So, from that perspective, there are no concerns. Liquidity continues to be very strong. We have seen about $10 billion of FII money coming into Indian markets this quarter. Similarly, the SIP numbers have continued to be very-very strong and sticky. So, no issues in terms of sentiments or liquidity. Just that at higher levels obviously the valuations are high. So, to that extent, I think in the very short term, there is no room for disappointment. Earnings will have to get delivered only then the markets can sustain these levels or higher levels.
But even there, I think things are falling in place. Commodity inflation has cooled out, so to that extent there is going to be some bit of margin expansion and if demand continues to be resilient, then I think we will be able to see earnings growth, which is going to be better than what we have seen in the previous few quarters.
So, in that sense if earnings delivery comes through, then markets can sustain these levels or slightly higher levels.
Do you think earnings delivery will come through? What is your sense?
We are positive. We believe that at least in the large cap basket earnings are going to be resilient that is what we have seen even in the fourth quarter. For example, the fourth quarter results were better than the first three quarters for the financial year; however, the same cannot be said about midcaps and small caps as yet. They will also get the benefit of margin tailwind but whether all of them will get the kind of tailwind that is required, given the way the stocks have moved up, is still a question. So, to that extent during the earnings season we could see a little more volatility in the mid and small cap basket as compared to the large caps. What is it that you are making of the IT pack right now? We were just looking at the stats and TCS, Infosys the heavies from within IT are still way off from their all-time high while the index is already at that peak and clocking newer highs on a daily basis. Do you think after the recent sort of recovery that you have seen at least in the midcap IT names the tide could change for IT soon?
I would say it is more than recovery for midcap IT. In fact, most of them have gone up much higher in terms of valuations at this point of time.
So, to that extent just like the overall market there does not seem to be much value that you can see in the midcap IT segment; however, the situation is quite different in the large-cap IT basket where valuations are quite reasonable and also this has been one of the underperforming sectors for the last one year so to that extent there has been under-ownership from an institutional perspective as well.
So, in case of market volatility, we could see this sector kind of giving you some defensive bias, at the same time we should also remember that in the very short term both the commentary as well as the momentum continue to be quite weak even for the large cap IT.
Now, given the fact that a lot of the headwinds for the auto sector, rising input costs, a stagnant demand all of these things are becoming things of the past, it seems like there are quite a few factors and drivers of growth now and we are seeing an outperformance as well within the entire auto sector. What is your sense as to how long you believe the streak is likely to continue?
Clearly, this seems to be at the nascent levels of recovery in terms of the overall cycle. As you clearly mentioned, many of the headwinds are things of the past. We continue to see good interest in terms of customer demand for new vehicles that have been launched in the recent times. The gross margin expansion is also very likely and some of the other global macro concerns in terms of cheap availability, etc, also are kind of reducing, I would not say it is completely gone out but definitely it is improving. So, overall, this is one sector where earnings growth is going to be quite higher than the market average earnings growth for the next two years. So, this continues to be one of the large overweight pockets in our portfolios at this point of time.
