In the backdrop of US easing monetary policy amidst record levels of fiscal spending and with China opening the taps on stimulus measures, metals and the overall commodities space can well turn out to be the dark horse sector in the coming quarters.
High frequency indicators are pointing towards a slowdown in the economy. Consumer facing companies are seeing earnings slowdown and management commentaries from them are not encouraging.
Earnings growth projections for FY25 are getting cut and we may finally end up with a single digit earnings growth number for the year. This, in the backdrop of high valuations, is not great news for markets.
Large cap valuations look cheaper relative to far more expensive valuations in mid and small caps spaces. In absolute terms though, large caps are also trading above long term averages amidst an earnings slowdown.
Banks are the one pocket of opportunity where healthy earnings momentum meets reasonable valuations. In many other sectors –especially industrials/cap goods, Vetri would be more comfortable buying into a correction.
In terms of style, Vetri expects quality/growth to start outperforming value going forward.
Investors who are overweight equity should dial back down to neutral weight. Hybrid funds seem sensible options now as they automate your asset allocation decisions based on market valuations.
While our industry talks a lot about robust demand side(SIP growth, retail inflows), we must keep an eye on the supply side dynamics as well. Continuous dilutions by promoters, MNC parents and PEs should be warning signals for us that they are finding valuations too compelling for selling into.