 "Navneet Munot")
Investing is often likened to mountaineering, a clichéd but fitting analogy. The world of investing, much like mountaineering, is fascinated with peaks. Understandably, the Sensex scaling Mount 75,000 for the first time yesterday has grabbed the attention of the investor fraternity. The combination of corporate profitability, liquidity (domestic and foreign alike), and positive sentiment driven by structural growth has played a part in Indian equities reaching new heights, even as other parts of the world paint a gloomy picture. Unlike mountain peaks, equity all-time highs are just numbers that do not seem too lofty after a few years. Therefore, the path ahead is more significant than the one travelled thus far.
There are many reasons for the success of Indian equities, but three key reasons stand out. Firstly, India’s robust macroeconomic fundamentals, structural reforms, and long-term growth prospects are promising. Secondly, the country’s diverse array of companies with high-quality management and strong corporate governance supports its status as a ‘stock picker’s paradise’. Thirdly, sustained domestic liquidity makes Indian markets less susceptible to the volatility of foreign capital flows. Domestic Institutional Investors (DIIs) can offer stability counterbalancing foreign capital inflows.
Evaluating the equity market landscape involves assessing four factors: Macro fundamentals, corporate profitability, valuations, and liquidity/sentiment. The bullish sentiment, strong fundamentals, and rising corporate profitability indicate positive long-term prospects for Indian equities.
However, some market segments are overvalued. Equity returns depend on earnings growth, dividend yield, and changes in valuations. Given the current market, future equity returns are likely to align with earnings growth.
Investor sentiment often swings from extreme optimism to exaggerated pessimism. In the short term, equity markets are likely to be volatile, considering the global environment and upcoming general elections. However, in the long term, equities tend to mirror corporate profit growth, a fact that investors should bear in mind.
An often-overlooked aspect of India’s economy is its historical reflection of economic growth and corporate profitability in equity returns, a contrast to countries like China, where equity returns have been lacklustre despite strong economic growth. With significant potential for economic growth and increasing financialisation of savings, long-term investors with a disciplined approach could benefit greatly from India’s ‘Amrit Kaal’.
(The author is MD & CEO of HDFC AMC)
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
