‘India’s long-term growth story will excite investors’

How do you see the current market situation?
From the domestic point of view, the September and December 2022 quarterly results were below expectations. If you look at the optical numbers, thanks to the super performance of the BFSI sector, the aggregate results were in line with expectations. But the moment you take BFSI out, you realise that the other sectors have struggled. The subdued results in the previous two quarters have created doubts in the markets.

The second thing is that our valuation is around historical averages in terms of price-to-earnings and price-to-book. But relative to our peer group, we have started trading at a much-much higher valuation. For local investors, now they (prices) are at fair value, but for global investors they are expensive. Either we need some price correction or we need a price rise in our competitors or we need some time corrections so that our earnings catch up with the fundamentals to excite global investors to come back to India.

What will drive the markets over the next few quarters?
In the near-term markets will be driven by what happens in the corporate sector. Over a longer term, the IMF believes that in 2028 India will be the third largest economy overtaking Japan, which is around $5 trillion today. We believe that this number is more likely in 2030 but a few see it happening in 2032.

However, every single person believes that India will overtake Japan and Germany to become the third-largest economy. This is the long-term story of India which will excite investors.

While the near-term outlook on the market remains uncertain, we still believe that it is a market to buy on the correction. This is a great exciting growth story. It will have its challenges but if you remain invested, it should provide adequate returns.

What is your outlook on Q4 earnings?
Banks and financial services companies are fairly bullish. Consumer durables are all waiting for the summer season. It’s more bottom-up than the top-down aggregate. My feeling is that there will be certain sets of companies that will meet investors’ expectations and some may not.

When do you see FPI flows coming back?
FPIs have made so much money in India and they have become a large part of anyone’s portfolio. The exit in India is possible. If you want to sell $8 billion in a financial services stock, it is possible to get an exit. Very few markets provide this kind of opportunity. And you are expensive also. So, what does an FPI do when there is profit, expensive valuation and exit? You can’t get a better opportunity than this to book your profit. I believe in the near term, FPIs may decide to sell India because of its expensive valuation and buy cheaper markets like China, Korea and Taiwan. But there will also be long-term FPI investors who will say that India is not a one-year, two-year or five-year story, it’s a 10-year and 20-year story.

We will attract long-term investors, albeit far more on correction than on the rise. We may see some profit booking because of expensive valuation relative to others because of the profit which we have already delivered to investors and as there is exit available in India.

How has Adani Group crisis impacted sentiments of retail investors?
A majority of mutual fund exposure in Adani Group on the equity side was either passive or arbitrage. Active exposure is very fairly low. All of their businesses are real and we are comfortable. Their total debt burden is manageable. The real challenge for us while buying equity is not the business or the debt but the valuation. Most of the time when we looked at the Adani Group shares, we found that their valuation was higher than our fair value and so, we could not buy them above the fair value.