Prashant Jain, ED & CIO, HDFC AMC
You get low PEs when there is uncertainty and in good times you won’t get low PEs. The bottom for our markets is 10-11 PEs. There are challenges on fiscal and current account but I think the worst is probably behind us. We are near peak interest rates.
One key risk to Indian markets would be a possible spike in oil prices. Given the already stretched current and fiscal account situation, we do not have any legroom to handle a spike in oil prices. I think this would have an adverse impact on markets. On the other hand, if oil prices come down $ 10, then that would have a good impact on the current and fiscal account.
Sunil Singhania, Head - Equities, Reliance AMC
We are seeing heavy underinvestment in equities which are placed the best right now in the light of improving fundamentals. The markets look at future. The interest rates are going to fall, inflation is looking like falling and the reform process has surprised most of us. It would be wise to be overweight on equity vis-à-vis other asset classes.
We are a capital deficient economy and need capital for .infrastructure, projects etc. There is a risk of currency movement. The biggest risk from investor’s perspective is to not invest in equities. Even if investors had invested since January 2008, they would have made 20% CAGR.
Raamdeo Agrawal, Jt. MD & Co Founder, Motilal Oswal Financial Services
We could enter into a decade of huge equity bull run globally. The valuations of Indian equities are reasonable and earnings growth is stable at 10 % to 12%. The next 14 months would be very exciting with what has happened in Gujarat and the kind of contestants we have for PM’s post. I think the next 14 months will be a do or die situation from Delhi. I remain hopeful on earnings, valuations and interest rates front. It will be a buoyant market. Markets never crash from 15 PE multiples. They crash from 25-30 PE multiples. The downside is limited.
Stocks move up and down not because of buying and selling. They move up and down because opinion changes. The opinions must change. There is a good likelihood that there will be a huge political change in the next 14 months. 60% of the fund managers have beaten the index
Ridham Desai, Managing Director, Morgan Stanley
There are three ingredients to a bull market. First, you need good valuations and arguably at the end of 2011, particularly when the markets tumbled in December, the price to earnings on a trailing basis hit the bottom. So the valuation criteria got satisfied. The next thing you need is liquidity and it did happen largely from global sources. The emerging market flows are hitting record levels. There is a lot of liquidity in the world and India is benefitting from that. The third and most crucial element in sustaining a bull market is expansion in profit margins. Over the past four years we have seen the profit margins come off quite sharply to hit decades low. I think the margin cycle has troughed. There is a fair chance that we are going to see a bull market. The market is about to hit an all-time high. Corporate India has doubled its earnings in the last five years. What looked like a very expensive market in January 2008 has gone through a tremendous time correction.
The quantitative easing has given India time to adjust its macro balances. The equity markets were quick to bounce on that. We have still not adjusted our macro balances. We have now initiated the right policy measures to make those adjustments but we need time. Any change in quantitative easing program could pose as a near term risk for the current rally. The long term risk depends on India’s execution of infrastructure. We have made significant progress in infrastructure spending and it should continue.
