Market insight: Valuations are still high in mid-cap stocks. There is a risk of further decline in overvalued stocks. Valuations in the mid-cap segment remain about one standard deviation above their long-term average. Although this does not mean that there will be a big correction immediately, but it is definitely a sign of limited margin of safety. Rohit Sarin, co-founder of Client Associates, said these things while talking about the market outlook.
He further said that unless there is a strong improvement in earnings growth and it is in line with expectations, there is scope for further time correction or price correction in overvalued mid-cap stocks. Therefore, investors should be selective and focus only on companies with strong fundamentals and sustainable earnings visibility.
Talking about the results of the companies, Rohit Sarin said that he believes that the decline in earnings has probably now reached the bottom. There is no fear of further decline from here. But we do not expect immediate or rapid recovery. The recovery in earnings will be gradual and will not be uniform across sectors. As demand stabilizes and input cost pressures ease, earnings growth may improve slightly in the next three to four quarters.
Talking about India’s possible trade deal with the US, Rohit Sarin said that the US trade deal is more important from a psychological point of view than from a fundamental point of view. From a macroeconomic perspective, the US trade deal will not have a huge impact on India’s overall GDP growth. However, such incidents play an important role in enhancing market sentiment and investor confidence.
Better trade relations between India and the US can reduce uncertainty, increase risk appetite in the market and have a positive impact on capital flows. Due to this, the psychological impact on the market is more important than the direct fundamental impact.
Talking on the Budget and the market, he further said that in the last three financial years, the government has made large and growth-oriented allocations for capital expenditure. It has played an important role in supporting economic activity. As this capex-led cycle matures, the government’s fiscal policy now seems to be gradually leaning towards reviving consumption-led demand. This can be achieved through targeted support measures, welfare schemes and incentives aimed at encouraging discretionary spending.
This policy is expected to continue as strong consumption should help improve capacity utilization, corporate earnings visibility and overall market sentiment.
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