Markets in Transition; PL Asset Management Advises Caution

Slow GDP growth, elevated valuations, and FII outflows create a challenging yet opportunity-filled investment landscape.

Prabhudas Lilladher (PL) Asset Management has released its latest ‘PMS Strategy Updates and Insights’, highlighting a transitional phase for markets. Cyclical corrections, elevated valuations, and slower earnings growth are contributing to range-bound performance.

Market volatility and momentum factors declined 6% over the past three months. While quality investment styles marginally outperformed value, broader equity markets remain expensive, with 50% of stocks trading above their 3-year average price-to-book ratios. Nifty 50’s trailing P/E ratio of 22.6x aligns with its 3-year average, but mid-cap and small-cap indices are trading at premiums of 32% and 18%, respectively.

India’s GDP growth slowed to 5.4% in Q2 FY24, its weakest since Q3 FY23, as manufacturing underperformed. Foreign institutional investors (FIIs) withdrew ₹45,974 crore in November amid rising U.S. bond yields and a stronger dollar.

PL’s AQUA strategy, which adapts to changing market styles, fell by 1.4% in November, reflecting increased allocations to defensive sectors like Healthcare, IT, and Consumer Goods.

Siddharth Vora, Head of Quant Strategies, advises caution, suggesting long-term return expectations of 12-15% while bracing for near-term volatility. Improving consumer sentiment and easing FII pressures may offer short-term opportunities.