Aditya Birla Sun Life Mutual Fund (ABSLMF), which manages assets of over Rs 2.70 lakh crore, said the market may seem to be overvalued to some people but that is because of the temporary hit to companies’ earnings.
It can be noted that following a rise of over 80 per cent in the benchmarks after the sell-off following the outbreak of the pandemic in March last year, many have raised concerns over the rally and its disconnect with the economy, which is set to contract by over 7 per cent in financial year 2020.
The Nifty will grow at a Compound Annual Growth Rate (CAGR) of 10-11 per cent in the next three years, Patil said.
In the near term, the market is reasonably priced from a valuation perspective. It looks overpriced but it should be overlooked because the earnings are also depressed, he said.
Maneesh Dangi, also a co-CIO, said the fund house expects the COVID pandemic will not leave a scar on the Indian economy, which is set to recover fully.
The economy will contract by only 5 per cent in financial year 2021, and the high inflation and the resulting negative interest rates have been a boon, he said.
Patil said the flows by the yield-chasing foreign investors, which have been the driving force for the ongoing rally, will continue even in the new year.
He said there could be some short-term episodes of volatilities but the markets will not correct by more than 10 per cent in such episodes.
The risk of a likely second wave has been taken care of by the arrival of a vaccine, he added. It can be noted that markets had corrected by 40 per cent following the announcement of the pandemic.
Dangi said the fund house is “neutral” on commodities after a surge in prices lately in both metals and oil, but added that the prices will be stable, which will help a country like India.
The mutual fund industry benefits from the TINA (There Is No Alternative) factor and should witness a spike of Rs 1 lakh crore in assets under management to Rs 14 lakh crore during the year, the company’s managing director and chief executive A Balasubramanian said.
He said the company would continue to focus on adding both assets under management and also new customers in the new year.