The corporate profitability is expected to continue to grow at over 20 per cent for fiscal 2003-04, much higher than the DSP Merrill Lynch’s (DSPML) estimate of 15 per cent for the current fiscal, DSPML said in its survey released on Monday.Corporate earnings expressed in growing profits instead of re-rating of markets will drive the activity on the bourses and auto stocks would attract maximum interest from investors, the DSPML fund managers survey reported.This was the first time that fund managers do not expect re-rating of the markets to be a big driver of equity markets, DSPML said. Despite the bull-run in stocks seen till date, the market was still perceived as undervalued. Close to 70 per cent of fund managers believe that markets are undervalued by 10-15 per cent, the survey said.Automobiles was the most preferred sector for investment among fund managers while the fast moving consumer goods (FMCG) stocks were least preferred. The commercial vehicle companies were expected to post 69 per cent year-on-year growth in earnings. Leading FMCG companies were expected to face stiff competition and continued pressure on their margins going forward.On the current market sentiment, the survey said, “Inspite of the sharp rally in the equity markets, overall sentiment continued to be robust.” It said, three-fourths of the fund managers expect a double-digit return from the markets and overwhelmingly said they would be buyers if equity prices fell 10 per cent.Banking was the only other sector where fund managers held a clear positive outlook and continued to be bullish on commodities like cement and petrochemicals, it said.Information technology was the second least preferred sector. The improvement in near-term business prospects were balanced by long-term margin concerns and rich valuations. The pharma sector appeared to be fairly valued with slowdown in earnings momentum and lack of major product approvals, DSPML’s survey added.
