Whether it was 2001, 2008 or 2013, whenever Indian markets have been trading at a reasonable value and have come off sharply because of global factors, it has always been a good opportunity to buy. That in a nutshell, is the message from Prashant Jain, Chief Investment Officer and Executive Director, HDFC Mutual Fund.
In an interview to CNBC-TV18, Jain says investors should not be distracted by the ongoing global events, and should instead focus on India’s improving fundamentals.
“All macro indicators are green, and we should do well over time,” Jain tells CNBC-TV18.
According to Jain, the market’s aggregate price earning multiple is quite reasonable, and corporate earnings growth is at a 17-18 year low.
With the economy on the path to recovery, things can only get better from here on.
He says India should not be too concerned about weak global demand as its share of global exports is low. At the same time, India will be one of the biggest beneficiaries of lower commodity prices, particularly crude.
In effect, lower commodity prices should more than offset any negatives arising from lower exports, Jain says.
He says the market is in a transition phase from a consumption-led growth story to an investment-led one.
Investment cycles take time to revive, and an uptick is underway, he says. However, the recovery in the manufacturing sector will be slower, and that is partly because of the weakness in the metal sector.
Jain is bullish on financials as these benefit the most in a recovering economy. He is bullish on consumer discretionary, but is cautious on FMCG as he feels the high valuations are not yet pricing a much lower inflation going forward.
Investors looking to invest in equities for the next three to four years can safely expect a 15 percent compounded return, he feels.
Below is the transcript of Prashant Jain’s interview with Latha Venkatesh and Sonia Shenoy.
Sonia: You have been with us through many of these patches where we have seen big swoops on the downside and equally big swoops on the upside. What is your advice to investors at a turbulent time like this?
A: As I have often said in the past and just to highlight once again that equity are volatile and a hard to predict asset class over a short period of time. What we have also seen is that one should focus on the local fundamentals because that is a driver of market medium to long-term. And one has observed that whenever market has fallen despite good fundamentals locally, due to global factors, these have proven to be very good times to invest in the medium to long-term view. So, I feel the same that the Indian economy is on the path to recovery, our current account is in very good shape, India has great growth prospects, our interest rates should come off as inflation has fallen much more than what was expected. So, all macro-economic indicators are green and we should do quite well over time.
Latha: Actually, you were with us, if I remember right, almost exactly two years ago when the market was falling like nine pins and the Nifty had touched 5,100 intra-day. You were in our studio at that time and you were telling us will you ever get State Bank of India (SBI) at these levels? Will you ever get any of these stocks, I mean you specifically picked up certain stocks and said will you ever get these at these levels? Can you say that with the same conviction of many of the Nifty stocks even now?
A: I do not recall, your memory is probably better than mine, but I think there is value in this market. I mean you look at the aggregate price- earnings ratio (PE) multiples which are reasonable. Corporate profitability is at a 17-18 year low. So, there are challenges in the commodity space but for many other companies, margins should improve. And as we go along, I see no reason why growth rate should not pick up and interest rate should not come down. So, I am optimistic about the markets. I just feel that the consumer companies might disappoint because the multiples are probably not pricing in the impact of a much lower inflation which will lower the growth rates of these companies quite significantly.
Sonia: That point is taken about the local impending growth story. But there is growth despair amongst global markets and that is what causing widespread pessimism. Do you think that the impact of the contracted demand in a market like China has already been priced into global markets or could there be some more to go?
A: One, India’s share of global exports is extremely low and our growth is more correlated to how we can grow that share and less to global economy per se. But, on the flipside, we benefit a lot more from lower crude prices. India is one of the very few emerging markets which benefits from lower commodity prices. Most emerging markets will come under a lot of pain. So, India clearly stands out as being a big beneficiary of lower commodity prices which I think more than off-sets several times any negative impact on the exports that we might see.