Market Correction Not Attributable To US; Some Pockets Overheated, Says UTI AMC's Tyagi

India's stock market correction is not emanating from the US. When markets are extremely high in terms of valuation, they need an excuse to come down, said Ajay Tyagi, head - equity, UTI Asset Management.

"We've been saying for many months and quarters. Possibly, we were early in calling this out...we've been thinking about overvaluation for more than 12 months now," Tyagi said.

In the last one and a half years, there were many experts pointing out that certain sections of the market are overheated, Tyagi stated, adding that Investors' behaviour doesn't change. "They all think in herds: panic in herds, and get excited in herds."

In the next few months, the typical reversal of retail investor behaviour will be seen. Some may stop their SIPs, maybe redeem their investments, he said.

However, he noted that the situation has improved. Largecap stocks are getting close to fair valuation zone. They are a tad bit expensive compared to long-term averages. One can selectively pick great businesses from this particular bucket, he said.

Problems are fairly deep for midcaps and smallcaps, said Tyagi. "Valuation cuts were required to be significantly higher. It's suggestable to remain cautious about mid and smallcaps."

He advised the investors to avoid going by the last 10 years' numbers for largecaps, midcaps, and smallcaps. "From 2014 to date, markets were in bullish zone. Sell-offs during IL&FS and pandemic were short-lived. Both these movements did not impact numbers."

Taking into account a longer time, smallcaps were trading slightly lower than largecaps and midcaps, he said.

"Investors cannot look away from something positive. Similarly, one cannot turn blind eye to something bad. Hence, market participants should put in hard labour to scan the markets to look for businesses which are appearing valuable to them," he added.

On US President Donald Trump's tariff plans, he said market participants have seen his behaviour over the last one month and that it's still difficult for one to gauge what could come and its impact.

Correction in IT and pharmaceuticals in last 15 days is giving comfort, however, until the tariff scenario is uncertain, the outlook remains unclear, according to Tyagi.

Private sector banks are relatively valuable compared to most of the businesses. They are well-run institutions and an investor can find clear comfort in terms of growth and favourable valuation in this pocket, assures Tyagi. 

Auto original equipment manufacturing businesses may not deliver immediate growth but from a valuation perspective, they provide comfort, he added.