At present, the investors seem to be anxious about IPO flood in the equity markets. At the happening hinge, with valuation cycles, a sensible investor will focus on sectoral valuation, as investing in growing businesses may swirl towards losses, if incorrectly valued.
Today, end-user segments like staple, finance, retail, chemicals, information technology and metals, look extremely overrated sectors which are not advisable. Considering investing in domestic-centric businesses linked to the cyclical segments of the market can mark the market both reasonably and attractively valued.
Talking about the present market condition, understanding valuations between different sectors and stocks is possible with the price to book valuation matrix which easily gives an understanding of where the market stands. As the earning cycle is picking up massively, Nifty’s price to book valuation could extend to the tune of 1 lac till 2030. Earnings growth orbit will be the vital construct in the next five to seven years.
Perceiving the current valuation across market segments hinting at some corrections. Digital and technology-related sectors look extremely over-valued with no returns to brace. In continuation to this, ESG, Electric Vehicle and specialty chemicals can liquefy materially in the near future.
Sectors which seems to be performing in the future are pharma formulations, auto & auto ancillary and banking. Since the real estate sector is picking up, consumer goods linked to the home improvement segment will gain. There comes the concept of early cyclical sectors makes the economy on the uptrend.
As an amateur principle, 70% could be allocated in equity and balance 30% in debt. It is advisable that within equity, 20% may be invested in pharma & healthcare, 50% in multi cap funds, 20% in balanced advantage funds and another 10% in small cap funds.
The position of the mutual fund industry can be depicted from the mid cap and small cap segments. Multi cap funds have defined allocations across market caps, which can be a fruitful in the next few years for making reasonably good risk-adjusted returns over the long term.
The roaring, powered by a surge of cash untethered by central banks and the rise of individual investors, eager to buy a chunk of their favorite companies. The listings and record oversubscriptions of the pulsating universe have witnessed record oversubscription and listing gains. 2021 is all set to become the biggest year for primary markets in terms of fundraising.