What is your outlook for the stock market?
India’s industrial production marked a 16-month high in October, while retail inflation in November peaked at a three-month high. These indicators point towards robust credit growth and a flourishing narrative of consumption, especially in the realm of retail credit. Clearly, there is a discernible upswing in consumer spending, accompanied by an overarching mood of optimism. The morale is buoyant not only among investors but also among entrepreneurs, promoters, and individuals at large. The positive environment fostered by the Narendra Modi government has translated into a significantly positive sentiment on the stock market.
Is the Indian market overheated after the recent run-up?
The market may not be overheated, but it’s not inexpensive either at the moment. The market is well balanced. Some segments, like PSUs, banks, or some large-caps, are still reasonably valued, while many mid- and small-cap stocks are overvalued.
What are the factors that investors must monitor closely?
Investors should prioritise earnings growth over other factors or geopolitical issues. Despite the market’s current excitement due to excessive liquidity and impending elections, sustainable valuations hinge on the improvement of earnings for Indian companies. Other events may come and go, but the key determinant of market stability and success remains the growth in corporate earnings.
Where are the money-making opportunities for investors?
One sector that I find promising is financials, primarily due to the substantial growth in the size of the savings pool. Over the past 25 years, we may have saved $10-$12 trillion, but in the next 25 years, this figure is projected to soar to $100-$150 trillion. The sheer magnitude of the savings is expected to be massive, benefiting various entities such as banks, mutual funds, broking firms, asset management companies, and insurance providers. However, it’s crucial to discern which ones are managed effectively.I am also optimistic about old-economy companies like cement, construction, among others, due to the government’s capex boom. Auto companies, especially those in the two-wheeler or small-car segment, are likely to flourish.
Any emerging trends that you have been watching?
The digital boom has created significant opportunities for businesses, like Zomato and others, capitalising on digital platforms to open new accounts and expand their operations. They are witnessing notable growth. On the other hand, real estate companies, which faced challenges over the last decade, are now potentially entering a phase of recovery.
What is the focus of your ‘Wealth Creation’ study this year?
This year, our main theme of the Wealth Creation study is ‘hockey-stick returns’, the power of economic profit. It is about how to push your company to the top called power curve. Our study shows how economic profit is a superior metric to accounting profit to understand the true profitability of a company. And how successful companies bought at reasonable prices improve the chances of hockey-stock returns. Mid- and small-caps are favourably placed to deliver hockey-stick returns.