Fund Managers On Whether This Is The Best Decade For Wealth Creation

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Has the Indian equity market’s unprecedented rebound from last year’s pandemic-driven selloff to new highs created a bubble?

At least three veteran portfolio managers don’t think so. Prashant Khemka, Hiren Ved and Andrew Holland see this as the beginning of a wealth-creation cycle.

Here’s their view, at the PMS AIF World Summit 2021 held via videoconference, on entry and exit points, and how to pick winning sectors and themes.

‘Great Opportunity For Wealth Creation’

Prashant Khemka, founder and managing director of White Oak Capital Management

Khemka said this could be a great opportunity for wealth creation as India may have a higher nominal GDP growth, at roughly 10%-12% for the next few years, and that’s the kind of return markets can expect.

A higher nominal GDP translates into sales growth and higher cash flow, and over time, profit and cash growth would grow in line with nominal GDP growth, he said.

Even if the markets may be “overheated” in the short term, White Oak stays fully invested, he said, because timing the market isn’t just difficult but impossible. Instead, he’s looking for “bottom-up opportunities”—or scouring the market company by company. That’s the reason Khemka isn’t considering themes as it will be individual companies that generate wealth for portfolios.

He cited the example of how three IT stocks have been their star performers since 2017 despite people writing off the sector back then. “Two elements which will determine the returns would be a change in earnings and the multiple to be assigned to cashflows, which is far more difficult to call.”

‘At The Start Of Raging Bull Market’

Hiren Ved, director and chief executive officer of Alchemy Capital Management

“We’re at the start of another raging bull market in India, driven by productivity and earnings growth,” Ved said. He’s also buoyed by a confluence of factors like high liquidity and low-interest rates, a large pool of savings waiting to be deployed in equities and strong economic and earnings growth.

Markets, he said, can’t be in a bubble in which domestic investors remain net sellers over six months. The second-and third-quarter earnings were strong surprises, and usually, during inflexion points, companies and analysts get it wrong because they’re so involved with the micro that they can’t step back and see the big picture, he said.

“There can always be a few pockets of overvaluation. Usually, it happens where forecasting earnings is difficult but a runway for growth is large,” Ved said. “But that doesn’t mean markets at large are overvalued.”

‘India Isn’t In A Bubble’

Andrew Holland, chief executive officer of Avendus Capital Public Markets Alternate Strategies

India, according to Holland, isn’t in a bubble because an average Indian is still under-invested in equities. He said how people compare the market situation at present with 2003-08, and while markets aren’t as cheap compared to 18 years ago, earnings growth over the next two-three years will be strong, driving markets.

Holland is more concerned about the U.S. markets, which may affect Indian markets, too.

“I’m less worried about India. The growth engine of the world over the next few years will be Asia, and will be led by China and India. But we’re in a narrative of how bad news is good news and the good news is great news,” Holland said. “And at some point, that narrative will change.”

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