Cautious due to valuation reasons; mid and smallcap space filled with landmines: Vinay Paharia

economictimes.indiatimes.com:

Vinay Paharia, CIO, PGIM India MF, says “financials is an area of opportunity, to be very frank because there are lots of good quality companies or private banks or NBFCs with very strong structural growth ahead of them. These are the companies which have much higher than average return on equity and they have clearly been stable businesses. We are clearly overweight private banks and non-bank financial companies and see this as a great source of opportunity.”

What is your market outlook in terms of how the valuations stack up versus the earnings growth that we have seen in the quarter gone by?
Definitely the valuations currently are at a premium and are seemingly capturing most of the fundamentals for the next six months to one year. We have borrowed some returns from the future and hence, for the near term we are a little bit cautious purely on valuation reasons.

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Tell us, which are the areas where you would be tempted to trim profits out of, I am not even talking about your fund, I am talking about the overall market landscape, which are the areas which warrant trimming?
In fact, recently we have done a study of the market which tells us that weaker quality companies, which have got lower than average return on equity and companies which have got lower than average revenue growth have actually delivered significantly better returns compared to their good quality counterparts. That is an area of concern and I would be very cautious.
In fact, I would want investors to stay