Has the unprecedented recovery of the Indian stock market from the pandemic sell-off last year to new highs triggered a bubble?
At least three seasoned portfolio managers don’t believe that. Prashant Khemka, Hiren Ved and Andrew Holland see this as the beginning of a cycle for wealth creation.
Here is her take on the 2021 PMS AIF World Summit, held via video conference, on entry and exit points and the selection of winning sectors and topics.
“Great opportunity for wealth creation”
Prashant Khemka, founder and managing director of White Oak Capital Management
Khemka said this could be a great opportunity for wealth creation as India could see higher nominal GDP growth of around 10 to 12% over the next few years and that is the kind of yield markets one can expect.
Higher nominal GDP leads to sales growth and cash flow, and over time, profit and cash growth would grow in line with nominal GDP growth, he said.
Even if the markets could be “overheated” in the short term, White Oak remains fully invested as timing the market is not only difficult but also impossible. Instead, he looks for “bottom-up opportunities” – or searches the market from company to company. Because of this, Khemka does not consider issues as they are individual companies that generate wealth for portfolios.
He cited the example of how three IT stocks have been their main characters since 2017, even though people were writing off the sector back then. “Two elements that determine the rate of return would be a change in earnings and the multiple assigned to cash flows, which is far more difficult to name.”
“At the beginning of the raging bull market”
Hiren Ved, Director and CEO of Alchemy Capital Management
“We are at the dawn of yet another frenzied bull market in India driven by productivity and earnings growth,” said Ved. It’s also driven by a confluence of factors such as high liquidity and low interest rates, a large pool of savings waiting to be put into stocks, and strong economic and earnings growth.
Markets, he said, cannot be in a bubble where domestic investors remain net sellers for over six months. The second and third quarter results came as strong surprises, and usually companies and analysts get it wrong during the turning points for being so involved with the micro that they can’t step back and see the big picture, he said.
“There can always be a few overrated bags. Usually this happens where it is difficult to forecast profits but a runway for growth is great, ”Ved said. “But that doesn’t mean that the markets are overvalued overall.”
“India is not in a bubble”
Andrew Holland, Chairman of the Board of Avendus Capital Public Markets Alternate Strategies
India is not in a bubble, according to Holland, because the average Indian is still under-invested in stocks. He said how people compare the current market situation to 2003-08, and while the markets are not that cheap compared to 18 years ago, earnings growth will be strong over the next two to three years and will drive the markets.
Holland is more concerned about US markets, which could affect Indian markets as well.
“I’m less worried about India. The engine of growth in the world over the next few years will be Asia, led by China and India. But we tell how bad news is good and good news is good news, ”said Holland. “And at some point this narrative will change.”
