Anish Tawakley, Deputy CIO - Equity, ICICI Prudential AMC believes the froth is overdone in the mid-cap and small-cap spaces and he recommends booking profits and switching to large caps. In an interview with Mint, Tawakley also said that the performance of the Indian market will be driven more by earnings growth and earnings outlook, than by small moves by the Fed. Edited excerpts: Market performance was good in 2023 because the economic outlook has turned positive.
Macro factors are stable and at the micro level, critical industries are starting to show a pick-up. On the macro front, the current account deficit has remained reasonable. Inflation has remained within the target range despite external shocks.
At the micro level, the key positive is that the real estate sector has come back – and this is a big change from the past decade. In our view, if the home building activity remains strong it will drive the other sectors. Specifically, once people have homes they become buyers of durable goods.
So home building then has a follow-on effect on manufacturing as durable goods demand increases. Equally importantly, the construction sector is a big job creator. Also Read: Can Nifty 50 repeat the feat of 2023 in 2024? Experts warn of challenges Market valuation needs to be seen in the context of the earnings outlook.
If we look purely at multiples (P/E or P/B) we find that in the large-cap space, the multiples are slightly expensive relative to history, but the earnings outlook is better than history. So our view is that, if the earnings come through and you stay invested for three years, then returns – driven by earnings growth - can be reasonable returns even if the multiples compress somewhat. In the small-cap and
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