‘There’s no irrational exuberance in market’

The benchmark indices have jumped about 50 per cent from their coronavirus lows on March 23, leading to fears that they may have entered the bubble zone. However, India’s top money managers are largely of the view that the markets may not have run ahead of their fundamentals. They say the impact of Covid-19 is transitory in nature and the equity market is factoring in a potential recovery, which is likely to play out over the next one to two years.

Fund managers and chief executives of mutual funds (MFS) were speaking during the fourth part of a series of webinars being organised by Business Standard under ‘Unlock BFSI 2.0’.

“We need to appreciate that interest rates have fallen. Low interest rates increase the fair value of equity. Yes, the economy will degrow. But the value of one-year loss of profit to the discounted cash flows of a business will be just 5 per cent,” said Prashant Jain, chief investment officer at HDFC Asset Management Company (AMC). “So, let us assume a business makes no profit in the current year. Its impact on the intrinsic value of a company is minimal,” Jain added. He pointed out that the markets were forwardlooking, and they were possibly looking at the next year and the year after that.

A Balasubramanian, managing director and chief executive officer of Aditya Birla Sun Life MF, emphasised the aggressive stimulus measures taken globally as well as domestically to tackle the Covid-19 crisis.

ONE SHOULD NOT LOOK AT P/E MULTIPLES. ON MCAP-TO-GDP AND P/B BASIS, MARKETS ARE QUITE REASONABLE PRASHANT JAIN,

ED & CIO, HDFC MF

IN THE LAST 10 YEARS, EQUITIES HAVE NOT PERFORMED, BUT NEXT 10 YEARS WILL BE GOOD. NEXT SIX MONTHS COULD BE VOLATILE NAVNEET MUNOT,

CIO, SBI MF

MARKETS ARE NOT OVERVALUED. DON’T GET CARRIED AWAY LOOKING AT THE GAINS FROM THE LOWS SUNDEEP SIKKA,

CEO, Nippon India MF

INVESTORS THINK DIRECT INVESTING IS GOOD. TILL THERE IS A SHOCK, THEY WILL NOT UNDERSTAND THE RISKS S NAREN,

ED & CIO,

ICICI Prudential

MF

WE ARE BULLISH ON GOLD. WHEN INTEREST RATES ARE LOW AND LIQUIDITY IS HIGH, GOLD PRICES ARE SUPPORTED NILESH SHAH,

MD, Kotak MF

I EXPECT THE MARKETS TO HIT A NEW HIGH NEXT YEAR, GIVEN THAT WE WILL COME OUT OF LOCKDOWN A BALASUBRAMANIAN,

MD & CEO, Aditya Birla Sun Life MF

“This is the first time that policymakers have reacted so quickly. In 2008, it took policymakers more than a year to react. The speed at which they have reacted this time is unprecedented,” he said. “In India, the government has announced ~20-trillion support. This is not a small amount." He didn’t rule out the markets surpassing their previous all-time highs before the end of the financial year.

Navneet Munot, chief investment officer at SBI MF, highlighted the fundamental difference between the markets and the economy. ”The markets are supposed to be forward-looking. There is little correlation between GDP growth and the markets. GDP is a lag indicator,” he said.

Munot said equities, bonds, and gold prices were all moving up together because of excess liquidity in the system. He said the economy could see a K-shaped recovery where “parts of the it will do well and parts will have to face challenges”.

On large outflows from equity MFS, Sundeep Sikka, CEO of Nippon India MF, said one needed to look at the type of investors who were redeeming. “A source of comfort is that investors with ~10,00015,000 ticket-size are sticking with their investments and are holding on. It is high net-worth investors, who tend to time the markets and take advantage of short market movements, who are redeeming their investments,” he said.

S Naren, chief investment officer at ICICI AMC, said the sharp jump in the markets had lured investors into direct investing. “Investors are seeing that oneyear fixed income returns can be made through the equity market in a week. They are getting more enthused,” he said. “There is lack of understanding of the risks. Only when there is a shock, people will understand the risks,” Naren said, advising investors to enter the markets in a sensible way.

Nilesh Shah, managing director of Kotak AMC and chairman of the Association of Mutual Funds in India, reiterated that MF investors needed to keep faith and be patient with their investments despite market volatility. “This is the point of time when one needs to keep faith in systematic investment plans. If you don’t need money for emergency needs, stopping SIPS at this point of time will be a mistake because of low returns,” Shah said. He pointed out that if one continued SIPS in a bear market, it could give double-digit returns in a bull market.

On the recent episode of certain debt schemes being wound up, Shah assured investors that India’s MF regulations were among the most sophisticated and best in the world. “There will be recovery and money will be repaid to investors postexpenses,” he said.