Buy Or Sell? How Global Fund Managers’ Extreme Views On Indian Equities Are Confusing Investors

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The Indian equity market is drawing views on extreme ends of the spectrum from global funds and celebrity investors. While Mark Mobius, emerging markets fund manager and founder of Mobius Capital Partners is of the view that Indian equities are set for a 50-year rally, Hong Kong-headquartered brokerage and asset management firm CLSA has given a sell call on the Indian equities, red flagging the unusually high valuations of Indian stocks.

In Its note to the investors, CLSA has expressed concern over the fact that unlike in the past, Indian equities are not backed by superior value creation in the ongoing bull run.

It also stated that the loan growth in India will remain at or below the pace of nominal GDP for the medium-term as the undercapitalised public sector banks continue to constrain the country’s economic output as they struggle to meet the demand for credit extension.

CLSA joins other global asset management firms like Morgan Stanley, Goldman Sachs, UBS and Nomura,  in giving the call for profit booking on Indian equities in recent times. 

Earlier, on November 2, IIFL Securities, stated in a report, that the previous two months of August and September have been extremely robust for the Nifty with gains of 8.69 per cent and 2.84 per cent, respectively. In September, Sensex scaled 60,000 and the Nifty 18,000 quite decisively. In October, both indices stayed above these levels for the better part of the month, however, the selling in the last 7 trading sessions was so sharp that both indices closed below support levels.

While mid-cap returns were still impressive at +2.84 per cent, the small-cap stayed in the negative. However, both the Nifty and the NSE Mid-Cap index gave up substantial gains in the last week.

Moreover, the RBI monetary policy at the start of October maintained its dovish stance, but the minutes revealed that even the RBI governor was wary of rising inflation. Like in the US, the RBI also realized that inflation was here to stay much longer. Towards the end of the month, there were a spate of FPI downgrades, which resulted in negative FPI flows. All these factors triggered the late sell-off in frontline stocks.

Interestingly, Mark Mobius, a respected name in the world of equity investments, has allocated almost half of his emerging-markets fund to India and Taiwan to counter the setback that investments in Chinese stocks have caused to emerging markets funds in recent months. 

“India is on a 50-year rally,” even if there are short bouts of bear markets, Mobius had recently said in a TV interview.

To Sell Or Stay Invested?

The extremely divergent calls on the value offered by Indian equities is a cause of concerns for most investors in the country who are worried about incurring losses in case of a big market crash, especially in the event of the Federal Reserve’s decision to taper its bond purchase programme that will suck out liquidity from global markets.

While most India-based investors, including the likes of Rakesh Jhunjhunwala, and First Global founder Shankar Sharma have backed a long-term rally in the equity markets on the back of de-leveraged balance sheets of companies and improving profits of BSE 500 companies, there are concerns over the abnormal valuations that recently listed tech-firms have gained in IPOs.

Zerodha co-founder Nikhil Kamath last week took a dig at beauty products e-retailer Nykaa’s IPO, stating, “Nyka lists at 1600 times price to earnings”. In his tweet, the brokerage platform co-founder added that it would be ideal for investors to head on a really long holiday.