Ambareesh Baliga | Outlook Business
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Amidst market sell-off, is it the right time to bottom fish?
Post the Union Budget on July 5, the Sensex has tumbled by 5% due to policy disappointment and FPI outflows

Samit Vartak, Founder and CIO, SageOne Investment Advisors

Minimal investor expectation is almost always good for future return. Current valuations are close to the low valuations prevalent in early 2013. They are not anywhere close to what we saw in late 2008 and early 2009, but at the same time the book earnings during that period were inflated compared to the cash flows. Today, they are pretty deflated and more real. If you leave out the good quality large cap B2C companies (such as brands, financial services, paints), more than reasonable value or even deep value has emerged in many good quality B2B manufacturing businesses such as niche manufacturers, specialty chemicals, auto ancillary and relatively non-leveraged EPC players.

The valuations of good manufacturing companies have gone down by half over the past 18 months. As interest rates have fallen, good capital allocating companies who are expanding will benefit from it. Not the whole basket but a few selective manufacturing companies will continue to grow even if they have faltered over one or two quarters. I believe the beaten down B2B oriented sectors and financials will take the market higher. Hence, today's environment of extreme pessimism is a favourable time to invest with a 3-year horizon.

Ambareesh Baliga, Independent market analyst

I don’t see any green shoots in the Indian Economy for the time being, so I think investors should wait it out. Even the Government doesn’t seem to be too bothered about the way the market is behaving. Given the state of the economy, I don’t know how capital raising will happen for capex and growth. Valuations may seem attractive but if the economy continues to slow down and go into a tailspin, then these valuations may look expensive in future. The consumer sector, too, has slowed down in the past couple of months due to unavailability of finance, unemployment and an overall aversion to spend. Unless we see money in the hands of people and the feel good factor returning, the sector will continue to face headwind.

The most important issue is investment in infrastructure which has not picked up as expected – since this sector is expected to drive the economy. There is a limit to how much the government can spend – thus there should have been conducive environment for private participation which seems remote now.  Even in the auto sector, valuations look cheap as compared to performance over the past two or three years. But if the slowdown continues, then even the current valuations will not sustain. The market was driven in the past 5 years based on intent projected by the Government packed with hope and expectations. After the budget disappointment, there seems little hope left. Now investors should act only when they see positive action by the Government, otherwise it’s better to conserve remaining cash.

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