'One must not exit equities completely'

'Investors need to have a fairly diversified basket of funds within equities.'
'We want them to allocate to largecap funds, midcap funds and flexicap schemes.'

The market is trading at 15-20 per cent premium despite a time correction in 2022 and next year could see further consolidation, says Ajay Tyagi, Head of Equities, UTI AMC.

In a conversation with Abhishek Kumar/Business Standard, Tyagi explains why investors should not have high hopes from the coming Budget.

What should one expect from the equity market in 2023?

The year 2023 could be one of consolidation simply because the market is trading at a 15-20 per cent premium to long-term averages.

Normally, markets consolidate in such situations and rightfully so.

Moreover, global GDP growth is likely to be poor and this may negatively impact our growth.

To sum up, higher valuations and expectations of 'trend level' earnings growth do not paint a very good picture for the equity market.

In 2022, the market is said to have gone through a time correction. Didn't that help?

A year before, the market was trading about 30 per cent higher than long-term averages.

The one-year forward P/E went as high as 22-23 times.

In the past one year, the over-valuation has corrected halfway, but we are yet to reach average valuations.

MF investors booked profits as the market touched new highs in November. Did they take the right call?

It's a rational move to cut equity exposure when the markets move up to such levels, especially for those who have stayed invested the past 4-5 years and are sitting on good profits.

However, one should not exit equities completely and wait for the market to turn attractive. It's a risky bet.

Re-balancing is a good exercise, but retail investors should refrain from timing the market.

Will you remain overweight on financials, going forward? Which sectors are you bullish on?

The opportunities in the financial sector appear to be good from a long-term perspective.

Within financials, we are positive on private-sector banks as they continue to finance consumption in India.

If valuations move above the comfort level, we can be tactical about them.

From a risk-return perspective, sectors like IT and healthcare are attractive, both in terms of valuation and long-term potential.

Do you expect the Budget to bring cheer for equity investors?

As the government's hands are tied on the fiscal front, the Budget has limited room to expand.

Ideally, the Budget should not be giving direction to the market. It can at best lead to some excitement that lasts a few weeks.

Market movement is governed by the progress of various industries and their future outlook.

Policy reforms also play a part, but the government no longer uses the Budget to make 'big bang' policy announcements.

What would be your recommendation to investors?

Investors need to have a fairly diversified basket of funds within equities.

On a market-cap spectrum, we'd want them to allocate to largecap funds, midcap funds and flexicap schemes.

Diversification should also be on the style front so that they do not miss out if one segment of the market does well.

By different styles I mean quality, growth, value and a blend in between.

Do you think tech stocks have bottomed out in India and the US?

It's difficult to say where the bottom is.

Firstly, a lot of positives that were getting back into these stocks have reversed in the past 12 months.

The pendulum has now shifted to the other extreme -- from a stage of extreme excitement around these companies in 2020-2021 to anxiety in 2022.

I would say both the extremes were untrue.

Take for example the tech majors in the US. Their core businesses are here to stay.

Advertising budgets continue to shift towards digital and so is the shift towards e-commerce.

I don't know if they have bottomed out, but they are surely trading at attractive valuations.

Also, I don't see any letdown in their structural growth in the next 3-5 years.

What about Indian new-age companies that got listed in 2021?

There will be some structural winners here.

All the unicorns will come up for listing in the coming years as their investors would need to exit at some point.

Of them, some companies would have strong sustainable models that will create value for investors.

Since many of these companies aren't profitable, the way to identify them is to see if they are solving a customer problem, if their business models can be profitable and if their founders are passionate about what they are doing and are not here to make big money and leave.