Speaking at the India Investment Conference organised by the CFA Institute on Friday, a clutch of market mavens — Ridham Desai, managing director at Morgan Stanley, Prashant Jain, chief investment officer at HDFC AMC, Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services, and Sunil Singhania, head of equity investments at Reliance AMC were very bullish on India.
Edited excerpts of what they said:
The markets in 2007-08 were trading way ahead of reality but this time it does not look so. Though the mutual funds have seen quite a bit of selling, but the majority of the retail investors do get it right. The markets after touching 10-12 price to earnings multiples do not touch the same levels in a hurry. The worst seems to be behind us. There has been urgency shown by the government and it would be good if they can sort out issues related to coal price pooling and reduction in subsidies which may help control the fiscal and current account deficits.
The three essential ingredients for sustainable bull market seem to be in place. On valuation criteria, markets have seen extensive period of time correction and price correction with current price to earnings multiple nearly half of that in January 2008. The flows, especially to emerging markets, seem to be benefiting India and the profit margins after hitting a decade low have troughed. Growth would be next leg-up for markets as growth forecasts right now are pegged at all-time lows. With interest rate still near to peak levels, any reduction in interest rates would boost profit margins for corporate India.
However, there are certain things to be taken care of. We cannot lose sight that quantitative easing has given India time to adjust its macro economic factors and equities have run up sharply. So there are near-term risks if risk aversion in the West leads to outflows. On a longer-term basis, we need to take urgent policy action on building infrastructure. I would still be buying stocks at reasonable prices and am sector agnostic. However, in the near-term, from a 12-month perspective, will favour cyclicals.
I think there is currently huge risk aversion with people … they are not touching equities. I would say that the downside is limited but the upside can be substantial from here on. The year 2013 is likely to see the markets hitting new highs and probably the start of bull market as the factors for same are in place. The valuations are alright, earnings growth is likely to revive and interest rates and inflation are likely to come down from here on. The next 14 months would be exciting. Stocks move up and down not because of buying-selling but because of change in opinion...we saw what happened on Friday morning where in Infosys’s better results led to massive change of opinion about it and led to 16-17%. There is a good likelihood of change in political progress in coming months, leading to change of opinion further. I would still prefer picking up the stocks on fundamental factors rather than timing the market. Oil and gas stocks are likely to do well if the government is able to put reforms into action.
Investors are currently quite under-invested in equities as an asset class. What markets look at is the future. The reforms process has suprised the markets and there could be many such factors ahead with interest rates and inflation likely to head down. It’s quite sensible to be overweight equities vis-a-vis other asset classes. Corporate earnings are set to see improvement as there are many companies right now whose interest costs take away nearly half of the operating profits. So if interest rates come down, these will benefit. I think one needs to marry fundamentals with market technicals to judge them and not only look at the price to earning levels. India being a capital-dependent country, there is always a risk of capital flows but I feel the biggest risk is not to invest in equities.