Market Today summit: Don't know the problems higher valuations will cause in the future, warn mutual fund experts

India’s mutual fund experts say that 2022 was a steady year for them and that could be possible due to the power of domestic investing. “That shows the domestic investor has become a force. In 2017-18, we used to fear the problems in banking, PLs, etc. All those problems are not there at this point of time, now we’re only looking at positive events. The only debate that keeps happening is on valuations,” Sankaran Naren, ED and CIO, ICICI Prudential AMC said. He was speaking at the inaugural BT Markets Today summit in Mumbai.

Naren said that the constant question for them is how much to worry about high valuations relative to the world. “That’s a debate which never ends. SIPs are the only ways in which we can reduce the risk of higher valuations at this point of time, we keep saying asset allocation because that’s second way to reduce the risk and the third way is to talk of debt,” he said.

In 2020, most of the governments actually overprinted money and did too much of fiscal without looking at the long-term implications so the final impact was in 2022 you had higher inflation in US than in India, he added.

“That’s why we’re in much better shape but the reality is that valuations are higher. We don’t know the problems of higher valuations and how we’ll suffer. But the general mood is optimistic even in the mutual fund industry because of the way the SIP movement has happened,” he said.

According to Prashant Jain, Director, and Fund Manager, 3P Investment Managers, growth outlook for India’s economy is probably one of the best. “There are two clear takeaways post COVID. One the outsourcing of services will become very broad-based as remote working has become very acceptable and as the western world is aging and India continues to add to young workforce. It will continue to create white collar jobs through offshoring,” he said. “That’s good for medium to long term economic growth.”

The second thing, he added, is that India is now competitive in manufacturing wages across Asia. “10 years back we were 30 per cent lower than China and today we’re half of China. The need to de-risk from China will bring more investments in India through FDI. Coming to markets, the most sectors profitability has returned to normal. We’re here for profit growth in line with nominal GDP growth. This is a market where expectations should be moderated. Last 18 months returns have also been lacklustre. I’m optimistic on the markets in 3-5 years. Ideally, one should invest less or phase out investments,” he said.

The industry maintains that the overall, the outlook on India remains positive. “In the mutual fund industry, most of the people have started looking at things from a long-term perspective. One of the key highlights of this year while we see SIPs coming at around Rs 13,000 crores, if we were to look at it from the other way around. We’re a country of 140 crore population, first time we’ve come at a stage where we’re getting Rs 100 per SIP per month from every Indian. This is happening when 3 per cent of the population investing in mutual funds. If this Rs 100 goes to Rs 200, we’re talking of going to Rs 25-30,000 crores. From our perspective, quarterly earnings are quite critical,” Sundeep Sikka, ED and CEO, Nippon Life India Asset Management said.

According to PPFAS Asset Management, when we talk about index levels or valuation levels, average hides a lot of things. “I’ve seen consumption-oriented names in 2003 trading at early teen multiples, those going to triple digits multiple these days. The second segment is new age or loss-making companies,” Rajeev Thakkar, CIO and Director, PPFAS Asset Management said.

He added that new-age companies, even after 20-30 per cent fall don’t become attractive by any stretch of imagination. “One segment which has been largely ignored and has been underperforming for decades is the PSU space. This time around the privatization intent seems to be real. For a long time, Air India privatisation was spoken about but now it’s happening,” he said.

“That is the segment where asset valuations are very attractive. In some cases, there are monopolistic or oligopolistic setups and with some management change can become very attractive. We’re headed towards a similar space. That’s one space I would want to watch out for,” he added.

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