With Stock Markets At Record Highs, Here’s What Investors Should Now Do!

The Alpha Strategist by Motilal Oswal Private Wealth in its latest report has highlighted that Corporate earnings for 2QFY22 are likely to be supported by recovery in domestic demand as indeed the higher global commodity and energy prices.

"There remains a clear divergence in intra-sector earnings growth. Global cyclical plays such as O&G and Metals continue to support earnings growth on the back of high commodity prices, and Technology continues to see robust demand-led growth. The recovery in corporate earnings is expected to continue as the economy opens and we approach the festive season with progressively higher vaccinations," the brokerage has said.

Here’s what investors should now do with markets at record jighs

Alpha Strategist by Motilal Oswal Private Wealth has suggested that the strategy for Equity is to invest 50% in lump sum and 50% in a staggered manner over the next 3 months in Multicap strategies and select Mid & Small Cap strategies (MFs, PMS, AIF).

According to the report, 70% - 80% of the Fixed Income portfolio should be biased towards high quality short to medium term accrual strategies with minimum investment horizon of 3 years.

"Within the above allocation, 20-30% can be allocated towards long maturity and high quality roll-down strategies," the report has said.

Outlook for equity markets

According to Motilal Oswal Private Wealth Equity markets continued the strong uptrend on both absolute and relative basis to global peers in September.

"In CYTD'21 Nifty is the best performer globally with 26% return in INR terms. In the month of September broader markets made a comeback too with Nifty Mid cap/Nifty Small Cap closing 6.9%/6.1% higher outperforming Nifty which closed 2.8% higher.

Global equities ended mostly lower on the back of rising bond yields amid rising prices, and China's power and realty sector crisis. MSCI World Indices/EM closed -4.5% and -5.6% lower respectively," it has noted.

Markets look expensive

Equity Market looks expensive on a trailing basis compare to historical average, however, on forward basis it seems to be near slightly above its historical average. Nifty's 12-month trailing P/E of 27.7x and P/B of 3.7 is at a 35% and 28% premium to its LPA of 20.4x & 2.8x respectively. While Nifty's 12-month forward P/E is 15% above LPA.

Motilal Oswal Private Wealth Equity markets has crafted a unique model, Temperature Gauge, based on the Motilal Oswal Valuation Index. MOVI is basically an index which is calculated based on the Price to Earnings (PE), Price to Book Value (PB) and Dividend Yield (DY) on the components of Nifty 50.

Using FY22 projected EPS for Nifty 50, the temperature gauge index is in the range of 120-125. Whenever Temperature Gauge Index has been at the levels of 120-125, the forward returns shows a higher probability of positive returns.

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal Institutional Equities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.