Sachin Trivedi of UTI AMC says auto space now at comfortable valuation after correction

The second part is the government attitude, which is clearly trying to address industry as well as investor concerns. I think these government steps should go a long way in terms of creating or improving the government’s image as far as the attitude towards industry in the market is concerned, which is very positive in my view.

Very hard to guess but again what we have to keep in mind is that when we look at earnings going forward, the Nifty could still be trading at 16 and a half times of Nifty earnings. So, if there are more earning cuts then PE expansion could take place. Now, pockets of opportunities should also start to arise in midcaps and smallcaps because if midcaps were trading at a premium to largecaps then they have come back to large discounts to the largecaps. So again that is one area where we should clearly see good amount of opportunities for us. This is a stock-specific story there because you cannot take large calls and buy every midcap.

I will not comment on what would be the target but if the economy picks up then there could be some improvement because FPI investment is still remaining which leaves a big enough room. The government has done its part by bringing in the fresh set of reforms, now we should all wait for how the economic activity picks up. The first effect will start to reflect on corporate earnings. Herein, we all as an investor should look longer-term rather than focus ourselves on next one-two quarters.

The market is a slave to earnings and a trajectory for earnings. If we have good earnings growth trajectory driven by the economic activity, we should start performing well in the long-term. But at this point in time, there are uncertainties globally which could impact exports and FPI flows. Not just India, other countries also have seen some amount of foreign outflows. So yes, if there are more and more uncertain times, we can continue to face some outflows in the near-term. However, investors search for tax-efficient longer-term outlook at the end of the day, so I think they will reconsider coming back to India.

After the corporate tax announcement, we are betting on financials, auto and all domestic-oriented service providers, except maybe life insurance companies.

We are quite positive on the private sector banks. Again within the private sector banks, well capitalised private sector banks are the ones which we are betting on. In our view, they will continue to gain market share from PSU banks and because of adequate capital, they should again be well placed as far as this area is concerned.

Our belief is that some of these banks’ NPA cycle is behind so the provisioning cost should no longer be as high as it was in past. That is one area we clearly are positive about.

In the auto space, the correction in the valuation as well as earnings expectations leaves us some room because our study indicates that this is one sector which is to an extent being cyclical in nature, so every 4-5 years there is some amount of challenges as far earnings is concerned which has already in our view has played out. So that is again comfortable valuation, long term growth story continues to remain because we are clearly low on penetration, so that is another area that we would be positive about.

Then, of course, we are also positive on pharma and IT.

We are the mutual fund participants so my advice to investors would always be forming an asset allocation plan, sticking that plan and keep it for a long time. Also, it is better to stick to a multicap because once we take the equity-related asset allocation it is best left to the fund manager to again decide on that so maybe that is my recommendation for the investors.