Category Archives: Interviews and Opinions

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Interviews and Opinions

An Insightful Market Discussion with Prashant Jain on ET Now

Prashant Jain, a notable figure in the investment world, in this recent interview on ET Now, dives deep into his views on markets, value investing, and how his life has changed since he embarked on his entrepreneurship journey.

The Current Market Scenario

Prashant believes that markets are currently fair, with no significant room for multiples to rise. In his view, returns should track earnings growth or nominal GDP growth. As historical benchmarks suggest, the market trades between 16-17 times based on fiscal 25, which is not cheap but not unreasonable either.

However, he also acknowledges that considering historical benchmarks might not be ideal since conditions like liquidity, the underlying growth of the economy, and global interest rates were different in the past.

The Indian Economy’s Global Prominence

According to Prashant, India is gaining more global visibility as a large, fast-growing economy. Its geopolitical standing is also improving, making it an attractive option for foreign investors. This growth could potentially increase the valuation multiple for Indian markets.

The Impact of Foreign Institutional Investors

Prashant points out that while foreign institutional investors have been net sellers, a shift in tide has been observed in the last 10-15 days. He predicts that over time, India should attract more foreign investment given its promising position in the emerging market basket. However, he also cautions that market vulnerability to foreign flows can’t be completely denied.

The Growth of the Banking Sector

Prashant has been a strong advocate for large banks with strong CASA (Current Account Savings Account) and a large balance sheet. He believes that banks are currently in a sweet spot with clean balance sheets, reasonable trade growth, and steady profitability. He also highlights that the gap in valuations across banks has now converged, making the divide between retail and corporate banks less relevant.

Large banks with good technology platforms are the ones that, in his opinion, are best placed to benefit from the current digital banking environment. He gives the example of State Bank of India, which has shown strong growth and should continue to do so given its robust technology platform and wide product range.

Defense Manufacturing

Prashant also discusses his interest in defense manufacturing. Stocks in this sector are currently commanding price-to-earnings multiples of consumer stocks. However, he implies that from a market standpoint, this sector’s potential might have been fully recognized.

A Smooth Transition to Entrepreneurship

Prashant Jain, an admired figure in the world of finance and investment, marked his entry into entrepreneurship in July. Reflecting on his journey so far, Jain reported a smooth transition, with his new venture progressing on track. He expressed no regret over his decision to dive into entrepreneurship, describing his experience as positive. He maintained cordial relations with his previous team and expressed respect for his former organization.

Market Analysis

  • Jain observed that the markets have made a strong comeback, despite initial concerns about inflation and unyielding interest rates.
  • Over the past 18 months, the markets have been flat and range-bound, leading to a time correction and moderation in multiples.
  • He argued that risks have been gradually addressed and valuations have become more reasonable, even though there is not much room for multiples to increase in aggregate terms.
  • His forecast for the market is that returns should track earnings growth or nominal GDP growth.

Historical Benchmarks for Valuation

In terms of historical benchmarks for valuation, Jain focuses on a 15-year average. He believes that this timeframe covers approximately one and a half to two cycles. Based on these averages, he thinks that the markets are trading at a slightly above-average level. He suggested that India’s growth rate should improve over the next few years, making it an increasingly prominent and fast-growing economy on the global stage.

The Role of Foreign Institutional Investors

Jain acknowledged the uncertainty associated with foreign institutional investors, who have been net sellers for the calendar year. He pointed out, however, that despite foreign investors selling almost 40 billion worth of stock between September 2021 to June 2022, the markets held firm. This, he believes, indicates a decisive shift in local savings towards equities, reducing the vulnerability of the markets to foreign flows.

Focus on Banking and Financials

Jain has been a strong advocate for banks, particularly large banks with strong balance sheets and high current account savings account (CASA) mixes. He believes that these banks should continue to perform well and predicts sustained growth in the sector. However, he warned that the gap in valuations across banks, specifically between retail and corporate banks, has now converged.

Bullish on State Bank of India and ICICI Bank

Jain expressed confidence in the growth trajectory of banks like the State Bank of India and ICICI Bank. He lauded the State Bank of India for reporting record profits for the year gone by and praised their technology platform and product offerings. He believes that the current digital banking environment favors large banks immensely, allowing them to extend their reach and provide services to remote locations.

In conclusion, Prashant Jain’s perspective on the markets, value investing, and his entrepreneurial journey provides valuable insights for investors and aspiring entrepreneurs. His belief in the resilience of the Indian economy, the potential of the banking sector, and the evolving role of foreign institutional investors paint a promising picture for the future of the Indian market.

Economic Analysis, Educational Content, Interviews and Opinions, Sector/Industry Reports, Trends and Insights

An Insight into India’s Market Trends with Raamdeo Agrawal

Introduction

In a recent discussion on CNBC TV 18, Raamdeo Agrawal, Chairman and Co-founder of Motilal Oswal Financial Services, shared his insightful perspective on current market trends, earnings season, the banking system, and future prospects of the Indian economy.

Source: The Economics Times

Key Highlights from the Discussion

On Earnings Season

  • Agrawal observes some positive surprises from the fourth quarter earnings, citing examples like Nestle and Maruti.
  • He acknowledges that the banking system seems robust with promising profit and loan growth across private and public banks.
  • Despite challenges due to the Ukraine war and inflation, he is optimistic about seeing improvements in Q1 and Q2 due to declining costs.
  • He believes earnings momentum will gradually build, positively impacting the Indian economy’s growth.

On Indian Banking System

  • Agrawal highlights the robustness of the Indian banking system, noting that it doesn’t require any capital support from the government and is ready to fund the Indian economy’s growth.
  • He anticipates good earnings from the banking sector this year, though he suggests that any significant outperformance may be uncertain.

On IT Sector

  • The IT sector has been a disappointment, but Agrawal suggests that the decline in valuations makes it a good time to invest.
  • He asserts that the growth story of Indian IT will come back “with vengeance” once the world economy revives its investment in IT.

On Manufacturing and Auto Sectors

  • Agrawal sees the auto sector as the largest part of manufacturing in India. He notes that the demand for autos has picked up, which he sees as a promising sign for the sector.
  • Despite some confusion over transitioning from Internal Combustion Engines (ICE) to Electric Vehicles (EV), he believes that earnings will continue to come from the ICE sector.

On Real Estate Sector

  • Agrawal sees the demand for housing as very good, driving the manufacturing of building materials.
  • He suggests that a decline in interest rates could increase the demand for housing even more, driving a positive trend for the real estate sector.

On Indian Economy

  • Agrawal believes that India is at an interesting turning point, citing a stronger rupee and a slump in the current account deficit.
  • He sees long-term growth prospects for India, with potential for it to grow from a 3.5 trillion economy to a 7 trillion economy.
  • He also predicts a bright future for India in the year 2030, asserting that the economy will look very different by then.

On Rural Market

  • Agrawal expresses some concern about the rural market, acknowledging that the low-end discretionary spend in the rural economy is weak. However, he believes that once the earnings momentum picks up, this trend will improve.

Economy and Market Trends:

  • The basic demand in the market exists, but discretionary spending is not faring well. This may be due to factors like high inflation, increased taxation, and slow trickle-down of funds from urban centers to rural areas due to COVID-induced disruptions.
  • He anticipates that the situation might improve in the next six months or so, aided by a good monsoon season.
  • Agrawal observed that foreign institutional investors (FIIs) are having a challenging time exiting the market, and re-entry could be even more painful given higher market levels. However, FII flows are starting to move.
  • Domestic flows have cooled down as investors have not lost money but also have not made significant profits. This has led some investors to switch to fixed income, which offers a more steady return.
  • Agrawal predicts that as the market moves upward by 20%, the allure of equity will return. This change will assert itself once the index moves from the current 17-18,000 to around 20-22,000.
  • He suggests that the real fun will begin when earnings growth picks up to 20%, the rupee stabilizes, and P multiple also reaches 20.

Performance of Different Sectors:

  • Housing finance appears to be a bright spot with around 50-60% growth in profits, while asset and wealth management have been subdued on a year-on-year basis.
  • His firm’s operating business has done about four to five percent higher, contributing to a net worth growth of about 12 to 15 percent in the current year.
  • He predicts the compounded growth in net worth for the last eight years, approximately 24-25%, to return.

Index and Investment Perspectives:

  • Agrawal is optimistic that the index will be higher in a year’s time, although he’s unsure of the exact increase.
  • His investment portfolio has remained stable, with public and private markets maintaining a split. He also mentions the regulatory changes which have lowered the accretion to the investment portfolio.
  • Agrawal is positive about new-age businesses, mentioning that the worst is behind for companies like Zomato. He notes a shift in sentiment and a push towards profitability among these businesses, albeit at the cost of some growth.

Agrawal’s perspectives provide valuable insights into the current state of the Indian economy and markets. His optimistic outlook indicates potential opportunities for growth and profitability in the future, particularly in the housing finance sector and new-age businesses.