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.