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Sensex, Nifty continue to set new records. What is happening in the broader markets?
Our conclusion is that the broader market remains supported. We saw the market hitting new highs today and that kind of change should continue. There are several reasons for that. We expect that domestic flows, which in the last 12 months have been nearly $20 billion, should continue. They may weaken slightly from here but that will be enough to support the market.
Globally there is a risk-on happening. It is not as much rapid acceleration of growth at this stage than reduction of some big uncertainties and overhangs. That should mean more flows to the market. Globally markets are not cheap and therefore India’s PE does not really look expensive compared to where equities are globally. I do not think the market is very expensive. Even on the EPS side, while the current estimates of 28% for FY21 may not really transpire, it will settle at 12-14%, but that will have a rollover impact because by the end of the next financial year or next calendar year, we will be taking about FY22.
We will be at least 12-14%. That way, at least the forward EPS will be higher. I do not expect the market in aggregate to do very badly. But we are staying cautious within the portfolio in the sense that we continue to prefer large liquid banks. A new phrase that has gained traction in the last two-three months is that of quality bubble. I do not see if the bubble is deflating any time soon. We are starting to move some of our allocations away from really expensive stocks, which are at 70-80 times earnings.
At no point can it be considered very attractive, but there are growth stocks which are slightly cheaper and low risk, which we have moved to. We have moved a bit to PSU banks. Also in response to the global cyclicals, we have kept an overweight on metals. One of the recent changes we made was a downgrade of industrials. We had been very positive on our last year’s outlook because there was a turn in industrials and investment capex but right now, that is because the economic slowdown has been kind of pushed out by a few quarters if not a year.
Talk to us about how your interaction with your clients are happening right now. After you released the note, I am sure you must have been interacting with your foreign clients. Is it active money or is it only ETF-led money that India is attracting? Where exactly are the enquiries?
The share of ETFs in the flows is not more than 12-13%. It was 11-12% till a year back. I do not think it is as passive as that but just because it is not ETF, does not mean that it is active in the sense that people are deliberately choosing to be in India. It is more that. There is an emerging market fund.
Suppose it gets a $100 million, then if India’s benchmark weight is 8%, you can choose to put 7% or 9%. That is where the difference is. So it is not that they are saying look India is turning, the economy is turning and let me go and buy something. People have the view that if you have to buy the market, you have to buy it when GDP growth is 4.5%. You should not be buying it when growth is 10% because it is when the prospects look the worst that you will get the best opportunity to buy. There are people who have that opinion as well.
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