Earnings will be healthy, but a mixed bag: Pankaj Murarka, Head Equity, Axis MF

In an interview with ET NOW, Pankaj Murarka, Head Equity, Axis MF, talks about the market trends. Excerpts:

ET Now: How are you assessing the current market movement? I mean the consolidation that was witnessed post a sharp run-up.

Pankaj Murarka: Markets have moved very sharply over the last six weeks in anticipation of the election outcome. This is not unique to India and can be seen in other emerging markets, for example Indonesia, which also will be undergoing an election coming July.

Therefore, after a sharp move, markets have taken a pause before the earning season kickstarts next week. However, the overall outlook on markets still remains constructive.

ET Now: Do you think one should buy some largecap stocks on dips; since you are constructive on markets?

Pankaj Murarka: I would think so as the markets are trading at about 14-15 times 12-month forward earnings, which is near to the fair valuation range. However, one has to look at the numbers in perspective. The economy is near the bottom of the growth cycle and for the last four or five years we have had single-digit earnings growth for index companies.

Since India is a classical cyclical recovery story, therefore going forward, as growth recovers, earnings growth is likely to accelerate. Once that sets in, valuations will look attractive because they have headroom to improve thereon. Therefore, from a medium-term perspective, we certainly think valuations are far more attractive.

ET Now: What exactly are you going to watch out for when the fourth-quarter earning season kickstarts?

Pankaj Murarka: Earnings have bottomed out, but we do not see a significant uptick or growth revival as yet. We think it will take a few more quarters before we see an earnings momentum in corporate results.

Having said that, we still think earnings will be healthy, but it will be a mixed bag.

ET Now: Do you think cyclicals have run their course for now? How do some of these companies look to you, especially on the valuation front?

Pankaj Murarka: As I said earlier, India is a classic mean reversion or cyclical recovery story from a broader economy perspective. We expect our growth to go back to about 6-6.5%, which is our potential growth rate, in about four to six quarters from now. This conviction spells a positive stance on all the domestic cyclicals sectors and stocks because they will have a strong growth momentum going forward.

For the time being, these stocks have done well, so they might take a pause or a breather. However, from a medium-term perspective, we remain positive on cyclicals.