Prashant Jain, Founder & CIO, 3P Investment Managers, says foreign Institutional Investor (FII) selling is expected to decrease significantly, potentially leading to a shift towards buying. The US market's underperformance may prompt fund managers to rebalance portfolios, favoring India due to its rapid economic growth and strong fundamentals. Lower oil prices and more reasonable valuations, with the Nifty trading near 17 times calendar 26 earnings, further enhance India's attractiveness.
Further Jain says 12 odd percent is a reasonable return for Nifty over 2-3 year period on a compounding basis. However, in small and midcaps, he would still be extremely cautious.
The kind of carnage we have seen in the last three or four days is reminiscent of what we have seen in 2008 and 2020. Even though the news flow is not that bad, the price action at a global level has been quite nasty.
Prashant Jain: You are right that the stock prices have come off quite sharply. India is pretty well placed because India's exposure to US goods exports is insignificant. It is 2% of our GDP and it is well known that our tariffs relative to our key competitors like China and Vietnam are lower. So, if at all, we are marginally at an advantage. The oil prices, the US 10-year yields and dollar have fallen sharply and each of this is positive for India. We care a lot more about oil than the impact on 2% of our GDP.
As far as the markets are concerned, while short term is always uncertain, there were two large sources of supply in this market which have sharply moderated, one was the primary market, we are all aware that people have lost, investors have lost considerable money on capital raising in last six months, so the appetite for has gone down dramatically.
We can see that primary market activity has come off 70%, 80%, 90% and I do not see that reviving in a hurry. So that source of supply of new stock is gone. FII selling has moderated considerably, it will moderate even further. The US markets are now underperforming other global markets after a very long time. Therefore, I feel fund managers would look to rebalance their portfolios and let us ignore what happened yesterday that was a big development, but over the next few weeks, I would expect even foreign outflows should moderate sharply, and who knows they may even become buyers.
Everyone knows that India is one of the fastest growing economies in the world. Our fundamentals have not been impacted, our relative competitive position has improved, the fall in oil prices is clearly going to benefit us and above all, the valuations have turned a lot more reasonable. India’s Nifty is now trading close to 17 times calendar 26 earnings, which is reasonable even for a 10% to 12% earnings growth, which I feel is a realistic estimate.
One thing which has changed sharply over the last one or two years is that the gap between India and US yields has collapsed. If you go back a few years, this gap used to be 4% to 6%, now it is earning between 2% and 2.5%. So, the lowering of the cost of capital is a big advantage and equities over time will price that in. I am constructive on largecaps. However, our return expectation should be realistic, 12 odd percent is a reasonable return for Nifty over 2-3 year period on a compounding basis. In small and midcaps I would still be extremely cautious.
If anybody would have said 12% a year ago, it would have been considered as dull and boring. After the market sell-off, if somebody is saying projected returns could be 12% CAGR, that thing should be a welcome delight so to speak. You are making a case that India is less affected. India historically does well when commodity prices are low, interest rates are coming down and there is a little bit of a problem in the world. That is the case now. What created the wealth effect in post-World War is ..
Prashant Jain: You are right, but only time can answer what impact it has and clearly the world has benefited from free trade and specialization and so there is no denying that. While that issue remains, which time will answer, India is quite well-placed. India's correlation with world GDP growth is the lowest across years. And why is that the case? Because two-thirds of our economy is consumption and India has extremely low per capita income. Only 5% of homes have air condition ..
So, our low-income levels, great demographics, and our level of consumption is extremely low and that is why our variation in GDP growth and dependence on global GDP growth is extremely low. Second, India is not a good exporter of goods. We are a good exporter of services. Service exports are less volatile than goods exports, that is the second reason. And third, we are commodities importers, and that again in uncertain economic times, helps us.
So, net-net, I feel that while what is happening could be marginally negative for the world economy, for us, the impact should be very minimal. Let me give you one more example. India's export share in manufacturing is so low that 80% or thereabouts of our growth in exports in goods should come from market share gains. At this low, insignificant base, if you start relying on world GDP growth to grow your exports, that would mean we have failed. If you look at the last 30 years, our software serv ..
How has it grown so much? It has grown 70-80% through market share gains. So, India should do everything possible to increase its competitiveness. The government is alive to this opportunity. They are supporting the industry. Our demographics, lower costs, geopolitics, all of it support manufacturing. So, even manufacturing shares will grow over time.
However, we have to be realistic, unlike services where you can set up a GCC in one quarter or two quarters, to set up a factory for supply chains to change, it will take many-many years. So, we should measure our success in manufacturing over years and decades and not over quarters.
Source Name : Economic Times