Domestic and global factors had battered stocks across all sectors at home in the last few months. While liquidity issues plagued the non-banking financial companies (NBFCs), rising crude prices and high interest in the US exerted pressure on the local currency.
However, the month of October and the first week of November has been a big relief, especially in the broader market.
Akash Prakash, director and CEO, Amansa Capital; Ridham Desai, head-India equity and research, Morgan Stanley; Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services in a Diwali special show ‘Samvat 2075’ discusses that after all this volatility could this festive season bring a long-term cheer to the Indian market.
Prakash said the market was a little ahead of itself last year – the valuations in the midcaps and smallcaps were a bit extended – so this correction which we are undergoing or has completed was much needed. "It has helped bring down valuations to a more reasonable level," he said.
"However, the scope for PE expansion in India is over and now we need to see earnings growth," Prakash said. "Till we get a decisive visibility and demonstration of earnings growth in India, I don’t see how the market will go up significantly.”
Desai said the market is not even as cheap as February 2016 and in 2013 it was very cheap.
Stating a very simple metric, he said “market cap to GDP is still not back to February 2016 levels,” said Desai.
When asked has the market corrected enough to constructively look at the market in terms of building portfolios, Desai said, ”I feel so because I think the earnings cycle is turning and I hope these are not last famous words because we have been expecting this for two years now. It has been very complicated and has defied my expectations.”
Agrawal said that clearly after 1500-1700 point correction lot of froth which was more in midcaps and smallcaps and even in some largercaps is out.
According to him, a lot is also dependent on domestic inflows into the market because the FIIs are still selling and valuations are not yet dirt cheap.