‘Can see bright Samvat 2074 ahead’

Ramesh Damani, a well-known value investor, expects the Indian market to have a bright Samvat 2074, driven by liquidity. Damani, 60, has been an active investor in the Indian stock market since 1989. He believes consumption will be a dominant theme in the Indian stock market. In an interview to Ami Shah, he warned that non-banking financial companies (NBFCs) and auto stocks look expensive right now. Edited excerpts:

MUMBAI:

It has been a great year for the market. How does the next Samvat year look from here?

It has been a great year, no doubt about it, but occasionally people like me have become circumspect about the market because it seems like there is some frothiness in the market, geopolitical risks, sluggishness in the economy. We are realising liquidity trumps valuation.

Also, this gush of liquidity have enjoyed has made all the other factors a bit extraneous. Indian domestic investors are finally getting optimistic about equities and that will continue.

With developed and emerging markets hitting new high, would mean that foreign money will come back to India. While we always have to be careful, for now it seems the market can look forward to a bright year in Samvat 2074.

Earnings have been behind prices. I think what is going to happen after this quarter is that the base effect of demonetisation will kick in. The low base effect should help earnings out there, and there should be some recovery as Indian companies’ profitability is at 5-7 year low.

What is the biggest risk to the market?

My feeling is, the bigger fear for the market is geopolitical risks. Market is not paying enough attention to those. But then, for example, if you heard one year ago, and did not bet on the market due to that, you would have been poorer today. We just have to ride the bull until we see an ominous sign that would force us to get into cash.

Isn’t it ironic that domestic investors are upbeat about the market at a time when economic growth is lagging?

There are two things that play out here. One is that of all the choices we have, equities are a good investment. If you don’t know which teams are playing basketball and you see one team with 5-footers and one with 7-footers, you will bet for the latter.

It is the same thing with investing. If you look at the landscape for investments, equities are the asset class which give you tax-free return. One-year capital gains is zero. Also, it is a very liquid market, and dividends are tax-free up to an amount of ₹10 lakh. So, equities are the 7-footer team in India.

Which sectors do you think have become really frothy as this moment?

NBFCs and autos. While NBFCs are still under penetrated, the valuations in the short-term look expensive.

With autos, you worry about the threat of electric vehicles and autonomous vehicles coming up. While it is not an imminent threat, it is one you can quantify 5-7 years down the road .

What are your thoughts on the consumption space?

Consumption will be a dominant theme that will be expressed in the market.

I think what sets India apart from other emerging markets is that we are 1.2 billion people, with a chunk slowly graduating to the middle class. It is the consumers that take the centre stage.

ami.s@livemint.com