1]  With the indices touching new highs there seems to be a high amount of euphoria in the market? Do you think it is overdone?

Over the last 3 years we have seen corporate earnings grow at an annualized rate of 25-30%. This above average rate of growth has been facilitated by rising operating margins (as capacity utilizations have risen) coupled with reducing interest costs. Going forward, we expect corporate earnings growth to be more moderate in the range of 13-15%. This growth will be demand driven, as the other factors of capacity utilization and interest costs have been played out.   

Based on a 15% earnings growth, the equity market is presently priced at 13 times forward earnings. Historically the market has been valued in a wide range of 10-20 times forward earnings. This puts the present market valuation in a “fair” zone and not in the “expensive” zone. Our expectation is that going forward the market returns would be more in line with the earnings growth, which is expected to be 13-15% over the next 3-5 years.

2] As a small investor does a mutual fund help me in a falling market compared to direct investing?  

The value proposition of a mutual fund is quite simple. A mutual fund offers the benefit of diversification, liquidity and professional management. These aspects work well for the investor who is unable to track his investments regularly, particularly in a falling market.

3] What will be the effect of rising oil prices on the economy?

Oil has been trending higher thus far, based on its own demand supply economics coupled with some element of speculation. Rising oil is negative not just for the Indian market, but for equity markets across the globe. For India , thus far, the oil marketing companies are bearing the brunt of higher oil prices. On the positive side though, we must note that a number of new, large sized oil & gas discoveries are taking place around the East and West coast of India, which will help in India’s long term energy self-sufficiency.

4] Which sectors will outperform the market over the next three months?  

The next three months are too short a time frame to predict sector outperformance. From a quarterly results point of view, we expect a reasonable set of numbers in the first quarter result. The sectors which are likely to show good growth are pharmaceuticals, Banking, IT and FMCG. The sectors which are likely to show slower growth are Oil & Gas (marketing companies) and selective parts of the Auto segment. 

5] With most mutual funds now looking at the same theme, how should an investor differentiate and look for a fund that suits his investments style or need?  

6] Is it time to get out of mid-cap stocks?  

After the rally witnessed in mid-caps, valuations do look expensive in certain cases. Therefore, the focus would have to be on companies where the earnings visibility is strong and the businesses are scalable over the next few years. One has to be very selective in investing into mid-caps at this stage.