Don’t see strong earnings recovery before 12-18 months: Leo Puri, UTI AMC
ET Now|
Updated: Nov 09, 2017, 03.34 PM IST
Talking to ET Now,
Leo Puri, UTI AMC
, says he would not be surprised if the Fed tightening cycle comes in March or April next year and the impact of that on Indian markets would be very significant
Edited excerpts:
How would you view the markets at this point?
Markets are clearly on a strong foundation in terms of quality at this point. However, we can see that there is risk of overvaluation. We are currently trading in the top docile, if you look at the last 10 years in terms of valuations. Now some of this is liquidity -- both domestic and global though currently it is mostly domestic. It may not sustain. My view is it would be the time to look at asset allocation for most households.
Clearly, we are seeing FPIs perhaps coming back or it is a cyclical -- one month there is a lot of outflow, then there is gradual inflow. But clearly once again domestic institutional investors, perhaps big ones like you and the EPFO funds are doing the balancing act.
Yes. Liquidity remains strong but liquidity in the long run cannot trump valuations. In the long run, we still have to look for earnings and earnings recovery and that remains at this point tepid. There are early signs but frankly it is going to take another 12 to 18 months to see strong earnings recovery and until that time happens, our markets will be vulnerable.
Secondly, we do not fully understand the implications of the change at the Fed. There is a view that perhaps there will be continuity and it may be a little more benign but we have been surprised before. Again, I would not be surprised if the Fed tightening cycle comes in March or April next year and the impact of that on our markets would be very significant.
Lastly, we have just seen a little spike in oil prices over the last week or two and we know how vulnerable our fisc is to rising oil price. That is again possibly going to change the scenario in terms of our ability to lower rates and perhaps play some pressure on fiscal management as well.
We all know yesterday we celebrated one year of demonetisation. The political debate arguments will keep happening but how do you see the financial sector as a whole has benefitted and clearly from a medium to long term perspective, the benefits are yet to trickle in?
Anything that encourages the creation of a formal economy on a stronger tax basis and helps financialisation of savings is clearly good for the financial sector. Because we have seen these flows coming in to insurance and mutual funds, the benefits of that will be felt in terms of deployment in capital markets. To that extent, that is readying the basis for a private sector capex cycle revival.
Edited excerpts:
How would you view the markets at this point?
Markets are clearly on a strong foundation in terms of quality at this point. However, we can see that there is risk of overvaluation. We are currently trading in the top docile, if you look at the last 10 years in terms of valuations. Now some of this is liquidity -- both domestic and global though currently it is mostly domestic. It may not sustain. My view is it would be the time to look at asset allocation for most households.
Clearly, we are seeing FPIs perhaps coming back or it is a cyclical -- one month there is a lot of outflow, then there is gradual inflow. But clearly once again domestic institutional investors, perhaps big ones like you and the EPFO funds are doing the balancing act.
Yes. Liquidity remains strong but liquidity in the long run cannot trump valuations. In the long run, we still have to look for earnings and earnings recovery and that remains at this point tepid. There are early signs but frankly it is going to take another 12 to 18 months to see strong earnings recovery and until that time happens, our markets will be vulnerable.
Secondly, we do not fully understand the implications of the change at the Fed. There is a view that perhaps there will be continuity and it may be a little more benign but we have been surprised before. Again, I would not be surprised if the Fed tightening cycle comes in March or April next year and the impact of that on our markets would be very significant.
Lastly, we have just seen a little spike in oil prices over the last week or two and we know how vulnerable our fisc is to rising oil price. That is again possibly going to change the scenario in terms of our ability to lower rates and perhaps play some pressure on fiscal management as well.
We all know yesterday we celebrated one year of demonetisation. The political debate arguments will keep happening but how do you see the financial sector as a whole has benefitted and clearly from a medium to long term perspective, the benefits are yet to trickle in?
Anything that encourages the creation of a formal economy on a stronger tax basis and helps financialisation of savings is clearly good for the financial sector. Because we have seen these flows coming in to insurance and mutual funds, the benefits of that will be felt in terms of deployment in capital markets. To that extent, that is readying the basis for a private sector capex cycle revival.
