Prateek Agrawal, head, equity, Bharti AXA Investment Managers, tells Krishna Merchant that the current valuations are not worrisome, as they are at much more comfortable levels compared to the last time when the Sensex was trading at 21,000. Edited excerpts:
The markets have been on an upward spiral for the past few sessions, with a good number of stocks touching new highs. Do you expect this to continue?
The last time when the Sensex was higher than 21,000, PE ratios were significantly higher than the current levels. Since the last rally, earnings have expanded and there is much more valuation comfort now.
The markets are likely to move higher, and the up-move in terms of percentage will trail the rise in earnings. The markets did not move much for eight-nine months. It is only in the last one month that they have rallied and have undergone a serious amount of time correction.
Once this up-move is through, we expect to see a time correction again, rather than a price correction. We expect the index to move sideways. Over the time, earnings will catch up with valuations.
Is this a good time to book profits in the midcap and small cap stocks?
Market participants have been booking profits of late. If you look at the mutual fund (MF) data, it is clear that MF as a category has been experiencing strong outflows at higher levels in the market.
Considering that markets will rise further, what will be your best bets?
Banking will be one of the drivers. Metal and mining can also do well, besides infrastructure, as the economy is booming. At a later stage, once the confidence in the level of the market is restored, we may see the breadth of the rally expanding.
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