ETMarkets Smart Talk: 2H2023 will be driven by how earnings pan out: Ruchit Mehta

economictimes.indiatimes.com:

“We expect equity returns to be modest as earnings growth will get eaten away by moderation in valuations. 2H2023 will be driven by how earnings are panning out,” says Ruchit Mehta, CFA, Head of Research at SBI Mutual Fund. In an interview with ETMarkets, Mehta said: “There has been a marginal uptick in valuations of the Nifty with the recent rally. The Nifty was trading around the 17-18x range in December 2022 and currently is at the 18-19x range” Edited excerpts: Sensex hit record highs while Nifty was above 19500 levels. How do you see the Indian market performing for the rest of 2023? We have been cautious on equity markets, primarily because of the high valuations.

Valuations have moderated, but they continue to remain at elevated levels. We expect equity returns to be modest as earnings growth will get eaten away by moderation in valuations. 2H2023 will be driven by how earnings are panning out.

Rising interest rates remain a challenge. Falling rates were beneficial as they pushed up valuations, and now the reverse is playing out. In that context, if the US Fed continues to raise rates, raising the cost of capital then valuations will continue to get moderated.Do you see FOMO in Indian markets or in any sector? There will always be a stock or a sector, in all market conditions, which gets re-rated due to too much money chasing it.

So, there will always be pockets of the markets that can be termed as going through a ‘FOMO’ phase.Let’s talk about valuations. How is Nifty placed at its peak compared to what we saw in December 2022 peak? There has been a marginal uptick in valuations of the Nifty with the recent rally. The Nifty was trading around the 17-18x range in December 2022 and currently is at the 18-19x range.I