Forex

Fund managers, who had been sitting on double-digit cash levels amid the 30% slide in the benchmark index, expect stocks to recover in the coming quarter, the poll showed. Seven of eight respondents in the Reuters Asset Allocation Poll conducted during June 23-25 said domestic shares will gain 5% or more in the next three months.

“If you look at it from a long perspective of three to five years, it’s a great time to buy,” Tridib Pathak, chief investment officer of Lotus India Asset Management, said. “Overall market valuations are quite attractive. The India story does not change in a matter of 3-4 months,” Mr Pathak, who held 5-11% of the portfolio as cash in four of his stock funds at May-end, said.

The one-year forward price-to-earnings (P/E) multiple of the BSE Sensex, which rose above 21 in January, has since fallen to 13.7. The market should see positive swings from third week of July, as earnings remain strong in view of robust advance tax collection and a good monsoon, RK Gupta, managing director of Taurus Asset Management, said.

Companies paid Rs 30,655 crore as taxes this fiscal year until June 21, up 39.81% from a year-ago, the finance ministry said last Wednesday. “Below 14000, selective buying will come... I think further downside is restricted,” Mr Gupta said.

SECTORAL BETS:

Large-cap stocks are in favour with nearly 90% of the poll respondents, while half of them said they are not averse to buying relatively illiquid mid-cap stocks.

Financial and engineering shares, which have undergone sharp falls and seen popularity wane this year, are back on their radar, with half of the respondents looking to raise exposure in the two sectors. “We are bullish on banking because we find valuations to be extremely attractive,” said Mr Pathak.

Financial stocks have tumbled more than 40% on expectations of monetary tightening by the central bank on spiralling inflation, bringing the price to book value of many state-run banks below one, which fund managers consider attractive.

Engineering stocks, also down more than 40%, have fallen more than warranted and should bounce back strongly as the market recovers, Jayesh Shroff, fund manager at SBI Funds Management, said. “Companies still have robust order books. Margins will definitely be under pressure, but this will not be as significant as the market expects or their prices suggest,” he added.

Half of the poll respondents are also looking to raise exposure to services stocks and defensive sectors such as consumer goods and healthcare in the next three months. A fourth of them said they will allocate more money to stocks in their balanced funds portfolios.