Equity Valuation: Wondering whether you should keep buying stocks? Reading from S. Naren’s Valuation Model may help


New Delhi: Valuation in the domestic stock market looks more fair during the ongoing corrective phase, which many experts describe as a sign of an impending bear market, India’s top value investor S Naren busy buying shares. Based on an in-house valuation model in mutual funds, where he is the Chief Investment Officer, the fund manager has increased the allocation to equities in his popular Asset Allocator Fund.

“The equity valuation The index indicates that the overall market valuation has declined from its recent peak amid rising global uncertainty. In line with our asset allocation model, we have increased the equity exposure in our Asset Allocator Fund to 33 per cent as on 31 May 2022 as against 19.8 per cent as on 31 January 2022.

The valuation model demonstrates the principles of buying low, selling high by increasing equity exposure to market downturns and vice versa.

Over the past one-year period, Sensex and Nifty have gained marginally with many stocks hitting 52-week lows with strong fundamentals, despite a strong FY22 in terms of earnings.

With assets under management of around Rs 16,000 crore, ICICI Prudential Asset Allocator Fund (FOF) has consistently managed to outperform the index in one year, two year and five year time frames. In the short term, the mutual fund has managed to protect the downside as compared to Nifty.

“The allocation/rebalancing between Equity and Debt Mutual Fund schemes is based on an in-house valuation model. Apart from the model, we also consider the opportunities that are available in the debt market. Here, the scheme has the flexibility to allocate 0-100 per cent for equity or debt depending on the valuation model,” said Naren, who has an impressive track record of three decades. Dalal Street,

As of May 31, the allocation to equity, debt and gold stood at 33 per cent, 56 per cent and 11 per cent, respectively.

“As a part of the asset allocation process and based on our in-house equity valuation model, we are continuously increasing our equity allocation across our asset allocation schemes.

Fears of recession and interest rate hike are giving sleepless nights to traders. Although the Nifty has recovered nearly 5 per cent since hitting a 52-week low of 15,183.40 on June 17, the outlook at this level does not seem bullish.

“The bull market we saw over the past two years was largely due to monetary policy measures initiated by global central banks. Currently, we are in the midst of an interest rate hike cycle (driven by global central banks), which may reduce global economic growth and such equity markets are expected to remain volatile,” said the money manager, near-term US rate The outlook looks uncertain and unstable due to the tightening in the economy.

Manufacturing is one sector where Naren is bullish for the next decade. “Domestic cyclicals like banks, auto, infra, cement, capital goods can lead the next rally in our view. Rupee depreciation will also help export-oriented sectors like IT and pharma.

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)


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