India Poised For Time-Wise Correction As Earnings Growth Slows, Says Dinshaw Irani

Indian markets are likely to see a time-wise correction going forward as the fundamentals are not in line with expectations with the valuations already high, according to Dinshaw Irani, chief executive officer of Helios Capital Management (India) Pvt.

India is playing a catch-up rally against Asia after it failed to track its peers in the recent rally, Irani told NDTV Profit. "Our feeling is that given the June and March quarter results, the fundamentals are not supporting the kind of rally we are seeing today." There will likely be a flat-lining at this point in the markets and probably a time correction going forward, he said.

India's economic and market growth warranted a rerating, which it received recently, Irani noted. But to manage that re-rating, markets need to show that kind of growth impetus, he said.

The last four quarters have slowed down with the index earnings growth for last June quarter at low single digits. "If banks are taken away it was a negative 7-8% and it's not healthy." To sustain the valuation, markets need to show growth which Irani doesn't think is going to happen. "And it's on the back that the consumption is not picking up."

There are pickles of comfort and pockets of froth in the current market, Irani said. "The large caps are the cheapest today and mid-caps are at a massive premium and it's definitely not possible to hold on that level."

The price-to-equity ratio of the Nifty is valued at 24, while that of the small-cap and the mid-cap index is at 33.07 and 45.3, respectively.

If investors want to invest, large caps are the place they must be in currently, he said. In these flat market conditions also there are pockets that grow by 10-20% and pockets that go down by the same level, he said.

One should be focused on sectors that are much healthier like the financial space. The services part of the financial space and the non-lending space within the financial sector is where the euphoria lies, he said. Secondly, it is the information technology space. "We have been away for a while, but given the situation in the market today that's a lovely sector to own."