Be careful while investing in financial markets

Business: New investors should be cautious while investing in financial markets as we are already halfway through the bull run. And a lot of sectors and stocks are trading at a very high premium to their P/E averages, said Jayesh Pharia, Director, Regional Head, West, Motilal Oswal Private Wealth, in an email interview with Mintjini. He also explained why investors should consider investing in the banking sector, consumption, industrials and healthcare. Pharia also analysed the reasons to invest in Nifty 50 based on its valuations compared to other emerging markets (EMs). Given the recently raised long-term capital gains (LTCG) tax, he advised small investors to choose mutual funds instead of investing directly.

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What are the key sectors investors can pin their hopes on?

We remain bullish on PSU banks, consumption, industrials and real estate, and we have taken a constructive stance on technology. We also remain positive on healthcare, and remain underweight on private banks and energy. Banking sector valuations appear attractive. In our opinion, valuations are not fully taking into account the recapitalised balance sheets of PSU banks, lowest net NPAs over the decade, and robust loan growth of 15-16%. With the RBI likely to delay interest rate cuts, NIMs may still remain stable at current levels, however, it may decline slightly due to rising borrowing costs. Private banks are currently trading at an 18% discount on a forward multiple basis. The discounts remain relatively stable on a trailing and forward basis, indicating similarity in historical earnings growth and future 12-month expectations. While metals, telecom, and healthcare sectors are trading at a premium on a trailing P/E basis, on forward earnings, valuations are close to their long-term averages, indicating stronger earnings potential over the next 12 months compared to their past performance.