Radhika Gupta
Photographer: Kanishka Sonthalia / Bloomberg
Photographer: Kanishka Sonthalia / Bloomberg
A record price / earnings valuation for Indian stocks should not act as a deterrent for investors, according to Radhika Gupta, head of Edelweiss Asset Management Ltd.
Gupta, the only female chief executive of a large asset manager in India, says it is “risky to be underweight in stocks” at a time when local stocks remain “heavily” driven by liquidity. His company, which manages 465 billion rupees ($ 6.4 billion) in assets, is putting its money to work: a balanced Edelweiss A fund that invests in stocks and bonds increased its capital allocation to about 75%, from just 30% in March.
“Looking at a single value or P / E metric is not a fair way to judge the market at a point when domestic economic activity is hitting bottom and you have such high liquidity,” she said. “We are business buyers. We are looking at corporate earnings, the domestic economy, flows and risk appetite. “
The Indian benchmark S&P BSE Sensex rose about 90% from its low during the March faint in 2020, breaking new records along the way. The rally powered by the central bank’s liquidity and incessant international inflows have traded more than 23 times their 12-month future earnings. This is against an average five-year multiple of about 18 times, according to data compiled by Bloomberg.
Sensex fell 0.6% from 10:16 am in Mumbai on Monday, tracking large declines in Asian stocks. He completed an 11th consecutive week of earnings on Friday.
Gupta’s optimism is at odds with the growing concern among many market watchers that stock prices in India are running ahead of themselves as the economy prepares for its biggest annual contraction in records since 1952.
Last week, the Reserve Bank of India also warned of the increase, citing an expansion “Disconnection” between certain sections of the financial markets and the real economy. The RBI also begin to drain money from the banking system as it seeks to return to the normal liquidity operations of the emergency measures imposed by the pandemic.
READ: Record valuations raise alarm in India’s frantic stock market
Earnings, data
Gupta, on the other hand, points to the improvement of corporate profits and the strength shown in recent months by high-frequency economic indicators, such as exports, car sales and industrial production amid an increase in consumption. Analysts polled by Bloomberg have revised upward the estimated 12-month earnings for Sensex members by about 20% since a fall in July.
“A lot of uncertainty around the markets has eased,” she said. “The second quarter was good for the company’s profits led by the expansion of margins, the tail risk for banks has been contained and some ongoing government reforms show that the risk of falling is not very high.”
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Foreigners continue to accumulate Indian stocks, having bought $ 2.4 billion net in two weeks in the new year, after injecting $ 23.4 billion in 2020. That was the maximum since 2012.
“Vaccines and the low interest environment we are in can be very good for emerging markets,” like India, said Gupta. “We expect to see a performance scenario above expectations for the corporate sector. With the opening of the blocks, we hope that the revenues will return ”.
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(Adds Monday’s moves in the fifth paragraph and updates prices.)