Meaningful recovery in earnings unlikely in next 2-3 quarters; wait for some correction to enter markets: Pramod Gubbi

In a chat with ET Now, Pramod Gubbi, vice-president for institutional equities, Ambit Capital, shares his view on market valuations.

ET Now: What are you advising to your clients post the US Federal Reserve's policy outcome?

Pramod Gubbi: There has been some sort of relief. The Fed has given some leeway by pulling down the forecast of growth in inflation and also by stating clearly the targets for unemployment. This means that although we might see rate hikes, the pace of those rate hikes will be slower than what the market was expecting. Any sort of turbulence that investors were expecting in global markets, will be muted.

Here, I am not saying that there would not be any hiccups when the US Fed hikes interest rate in June or September. But, the pace will be slower than what people had been anticipating. To that extent, India remains steady from a global risk-perspective, but the factors ruling the domestic market are more of local ones. The government’s reform agenda is on track. A lot of the things that the government is doing is pretty good from a structural long-term perspective. Having said that, some of the initiatives could mean that the shorter-term recovery could be muted.

To that extend and due to the fact that its impact on corporate earnings could be fairly severe, we are not looking at earnings recovery any time in the next two-three quarters. The prevailing valuations might cause you to take a step back. You may wait for a decent bout of correction before you re-enter the markets. That is pretty what we are recommending to our clients.