No Value Opportunities in Current Market Environment: Expert Insights
The current market environment is not offering any value opportunities, says Kenneth Andrade, CIO, Old Bridge Mutual Fund. He suggests that investors should balance their view before taking any investment decisions.
Market EnvironmentValue OpportunitiesInvestment DecisionsSipsValuationGeopolitical FactorsIt SectorReal Estate SectorReal EstateAug 24, 2024
As an active manager, we need to move our lens to 2030, then we could look at some probable opportunities that would be a part of the portfolio. However, in the current market environment, there are no value opportunities.
Investors who have made enough money in the non-stop bull run are now confused about whether they should stick with their SIPs or withdraw a decent part of their portfolio. According to Andrade, SIPs are a disciplined way of averaging out different levels in the market. It has been a wonderful tool to smoothen out returns over long-term cyclicality of both the market and portfolios.
However, valuations in a lot of businesses are running ahead of time – the expectations are building up significantly. In situations like this, what is not factored into this scenario is an external event which could derail executions. Investors need to balance this view before taking any view of incremental investments.
The biggest risk, besides geopolitical factors, that can disrupt the bull run in the next few months is valuation. As investors, valuation is key to determining an entrant into a new company/ business. We do agree valuations are trending at a high of their band and there is a probability of a time or a price correction.
The current marketplace has a phenomenal amount of momentum. Valuation is factoring in multiple years of growth. Our portfolios are currently reducing exposure to some of these names. Our preference in the recent past has been to allocate to companies/ businesses which are globally competitive – have finished their capex cycle and are now increasing their market share either by industry or at a company level.
Increasingly more businesses with dollar revenues are finding a place in the portfolio. Our belief is that if India must move from 3.5% of World GDP to 5 or 7%, it cannot come from the same inward-looking businesses which did well over the last few years.
The IT sector, especially largecaps, is not very attractive given the valuation and order pipeline. The industry has done well in the short term, and the reason is also from the order pipeline various participants have accumulated over the past couple of years. While it remains a mature sector, we don’t expect significantly differentiated returns from the industry.
The real estate sector is in the early stages of topping out. Typically, real estate sees a cycle of 8-10 years. The stocks have done well here and to date, it has been on the back of volumes. This time around, which is the next cycle – do expect real estate prices to do well. Consolidation, cash flows and a buoyant demand environment have helped the sector to do well.
We tend to get a bit apprehensive when all participants in an industry do well. And that seems to be happening out here. Profitability and easy access to cash from investors are usually a lead indicator of competition. From here, we would only witness an increased competitive activity, which is why we believe we are in the early stages of the cycle topping out.
Frequently Asked Questions
What is the current market environment like?
The current market environment is not offering any value opportunities.
What should investors do with their SIPs?
Investors should balance their view before taking any view of incremental investments.
What is the biggest risk that can disrupt the bull run?
The biggest risk, besides geopolitical factors, that can disrupt the bull run in the next few months is valuation.
Is the IT sector attractive given the valuation and order pipeline?
No, the IT sector, especially largecaps, is not very attractive given the valuation and order pipeline.
Is the real estate sector in the early stages of topping out?
Yes, the real estate sector is in the early stages of topping out.
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