Earnings growth to play larger role in determining portfolio returns than valuation re-rating: Nilesh Shah
Earnings growth is likely to play a larger role in determining portfolio returns than valuation re-rating in the near term, as valuations of Indian equities remain neither cheap nor expensive, according to Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company.
Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company, has stated that earnings growth is set to play a more significant role in determining portfolio returns in the short-term compared to valuation re-rating, as Indian equities' current valuations are neither cheap nor expensive. During the Q1 earnings season, companies reported results that were either above or in line with expectations, with few disappointments, Shah noted.
The earnings growth figure was impacted by the performance of oil marketing companies; however, excluding these companies, the broader economy delivered strong results. Shah believes that the market's future performance will increasingly depend on companies' ability to deliver sustained earnings growth, and investors should not anticipate valuation expansion to be the primary source of returns at the current stage.
Shah describes the current market valuations as balanced, not cheap, and not excessively expensive. He expects earnings growth to contribute more to portfolio returns than further increases in valuation multiples. Foreign portfolio investors (FPIs) have been buying small and mid-cap stocks, with over 100 of these companies reaching all-time-high FPI holdings.
Shah emphasizes the importance of looking beyond headline market-flow numbers and understanding the underlying movement of money, as FPIs have been buying in the primary market while selling in the secondary market.
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