The current correction has given an opportunity to investors to invest in good quality businesses at reasonable valuations after a long spell of over-valuation.
Investors should focus on sustainability of earnings growth than percentage of growth while investing in current round of market uncertainty.
As smallcaps and midcaps are down by more than 30%, one can start to bottom fish in good quality companies but avoid averaging stocks whose fundamentals have deteriorated significantly.
Recent correction reduced the premium equity valuations
Currently, the market is trading at ~6% premium to its 10-year average P/E ratio compared to a premium of ~12% a month ago. Further, due to recent correction, the Nifty 50 is now trading below +1 std dev P/E ratio.
Besides, recovery in economic scenario and commodity prices are favorable tailwinds for corporate earnings growth. In FY19, corporate earnings may still grow at ~14% against a previous expectation of ~20% growth due to worsening macros. This is still better that the single digit growth rates of past couple of years.
In line with IIFL’s endeavor of providing our clients with prudent financial advice, we recommend investors to focus on stocks with clear sustainability of earnings growth than percentage of growth.
This report highlights the current macros and growth outlook of the Indian economy coupled with our top stocks and mutual fund recommendations. Happy investing!!!