The current valuations of the market at 18 times one-year forward are reasonable. However, the risk of further earnings downgrades in select sectors still exists, which means that investors need to be careful and selective when investing in certain sectors, as per Sanjeev Prasad, MD and Co-Head of Kotak Institutional Equities.

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According to Prasad, one should be careful about investing in the auto space sector to be cautious about is the auto space. While he does see some potential in select pockets such as tractors, he is negative on the overall 2-wheeler and 4-wheeler space. Prasad believes that this sector will see a slew of earnings downgrades in the coming year.

He said, “We had a very cautious view on most of the auto names barring the commercial vehicles (CV) and tractor space. We have been negative on the two-wheeler space, and the entire four-wheeler space. So, continue to maintain that stance.”

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Talking about IT stocks, Prasad does not see much potential for growth this year. He believes that the sector will remain stagnant, and investors may want to look for opportunities elsewhere.

“The first half of FY24 looks like a slow period as far as the IT sector is concerned and on top of that the valuations, in most cases, are higher than the COVID level. So, I suspect you still need to see some more rerating as far as the stocks and multiples are concerned, and you will also probably see earning downgrades. So IT doesn't look good at this point in time,” he said.

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Another potential headwind that Prasad sees for the market is a muted monsoon. A poor monsoon season can have a significant impact on the economy, especially in the agricultural sector. This could lead to lower earnings for companies that are reliant on this sector.

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