Arora, whose PMS firm recently ventured into mutual funds in India, says the current market valuations look justified. He also shares the factors that make him nervous about January. Edited excerpts from an interview:
Do you expect the market rally to continue into the new year?
Normally, going into the new year, I feel the market returns will be in the mid-teen range because that has been our history. Across any periods of 5-6 years, the annualized returns of Indian markets have been in the mid-teens. Also, from the perspective of earnings growth, it is reasonable that you get returns in the mid-teens. This year might still be better because it could be a year when both FIls (foreign institutional investors) and DIIs (domestic institutional investors) are buying. And if the earnings come back in a strong manner, the returns can be higher. But at the same time, if they are much higher, then you might have to settle for lower returns later. You can't make higher returns just because of higher flows. In the end, you are not making much more than mid-teen returns over longer periods on annualized basis. For me, it is not much more than even earnings growth. But I am little bit nervous about January itself. Whenever there is a lot of excitement, lot of flows are coming, FIIs are coming, IPOs (initial public offerings) are happening, I am a bit wary. The December-quarter earnings will start trickling in from January.
How do you see valuations at this juncture?
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