Valuations expensive across sectors; prefer financials, auto: V Srivatsa, UTI AMC

With benchmark stock indices rising 10-30 per cent in 2023 so far, valuations have turned a tad expensive across sectors. V Srivatsa, Executive Vice President and Fund Manager (for Equity) at UTI AMC says it is getting difficult to find investing opportunities from a value perspective today compared with 3-6 months ago, as stocks today are trading at fair valuations when seen from a near-term growth prospects.

In the backdrop of rising crude oil prices and sticky inflation in developed economies, Srivatsa still believes emerging economies have room to cut rates given subdued inflation expectations there, even as the US Federal Reserve and European Central Bank (ECB) are in a rate hike mode. 

“The differential in rates should support flows in emerging markets and make them attractive. Also, the sharp long-term underperformance between the US and other emerging markets leaves scope for catch up,” Srivatsa told BT Markets Online.

Data showed foreign portfolio investors have pulled out Rs 4,467 crore worth equities in September so far. Despite this, they are net buyers to the tune of Rs 1,30,820 crore domestic stocks year-to-date.

Srivatsa manages equity portion of UTI Core Equity Fund. Besides, he manages equity portions of UTI Equity Savings Fund, UTI Hybrid Equity Fund and UTI Retirement Benefit Pension Fund.  In total, he manages about Rs 7,500 crore in equity assets.

Srivatsa, who has been with UTI AMC since 2002, said a sustained rise in oil prices could hurt inflation and, more importantly, balance of payments and fiscal subsidies. On the global side, it may fuel further inflation and run risks of further interest rate hikes. It can also potentially impact GDP growth, he warned.

“Right now, the valuations have gone up a tad and look expensive across sectors. Opportunities from value perspective are lower as compared to three or six months ago,” he said.

Sectors to watch

Srivatsa is positive on sectors such as financials and automobiles. In the case of financials, the outlook looks good decent credit growth visibility, stability in net interest margin (NIM) and benign credit costs. While valuations have gone up in the last six months, Srivatsa still sees opportunities in the large cap banking space.

In the automobile space, he sees scope of earnings growth, especially in two wheelers and passenger cars. He finds auto ancillaries as a structural play on the auto sector growth.

“In terms of valuations, IT and metals look attractive as they are trading below mean from a long-term perspective,” he said.

Srivatsa said the recent earnings season was led by financials and that decent growth was also seen in sectors, which got benefit of lower commodity prices such as FMCG, consumer durables and pharmaceuticals while commodity players saw the brunt of lower prices.

“Overall, market earnings growth remains healthy.  Based on the earnings, we see scope for earnings upgrades in financials,” he said.

Disclaimer: Recommendations provided in this article and/ or any reports attached or relied on herein are authored by an external party. The views expressed herein are those of the respective authors/ entities, and do not represent the views of Business Today (BT).

Disclaimer from UTI AMC: The views expressed are author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not an investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instruments.

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