Half the market

Says Mehraboon Irani, head of the private client group business at Nirmal Bang Securities: “The only factor the market looks forward to is corporate earnings. Now, it is going down in the minds of markets that earnings are not going to improve in the next two to three quarters. What has happened is that analysts, after elections last year, projected a sharp recovery in earnings. Whether things improve in FY15-16 or in FY16-17 is under question. So, valuations have risen ahead of the earnings. The consensus view is that the March quarter numbers will also not be good.”

Among other things, Irani says the market is looking at passing of important legislation by Parliament. “Third is the dollar strength. Fourth is the US interest rate cut, which I think will not happen in 2015. With not many positive triggers and some negative triggers, the markets are likely to correct,” he says.
While the jury is out over when the US Fed will take its first step on rates, certainty over a delayed pick-up in earnings is slowly sinking in. That could trigger a sell-off or at least lead to under-performance of stocks riding the hope rally.

Hence, investors would be wise in being selective while picking stocks. The fact that the markets are sensing many stocks have run up without reason can also be seen in the unwinding across counters. A large number are quoting at prices below the levels in September last year, says Irani.

“So, it is more important to focus on stocks with high earnings growth and reasonable valuations. That’s also one reason why many such stocks are getting expensive,” says Irani. he adds that even as the Nifty will be higher a year down the line, there will be stocks that will be lower than today’s. That would apply to half the market.-from BS