India is a beautiful midcap ready to become a large-cap, says Equity Intelligence MD

Abha Bakaya Ashu Dutt | Updated on January 20, 2018

PORINJU VELIYATH, Managing Director, Equity Intelligence

The Indian market is in a roll with renewed interest from foreign funds. Speaking to Bloomberg TV India, Equity Intelligence Managing Director Porinju Veliyath says India is like a “beautiful” midcap in the global environment which has a potential to become a large-cap.

Markets are on a roll. What are you making of the recent run-up?

Definitely, the Indian markets have a very long way to go. I still believe there is a fundamental and structural change not only in the economy but even the stock market and the politics of the country. There is a major structural shift and so investors must take it seriously. And, it is basically a positive change. There is no major negative change. If we remain at a very low capitalisation as compared to the population of this country, it is almost impossible for me to think that we are in a bear market. And the recent run-up is a rational move. I don’t consider it a rally. What happened a few months with Nifty going below 7,000-level was irrational and that was something which happens once in a while. So, the bounce is the rational correction of mistakes that happened earlier. That is why I still believe that Nifty at 8,000-level is rational bottom for the market. That way investors can be comfortable in stock picking in this market environment.

If I was someone who doesn’t really know much about the market and I am ready to invest at this point of time, what do you think my one-year return could be if I just bought the Nifty?

Nifty can give you may be 15-20-per cent return one year from now.

So technically you think that Nifty touching 9,500-level will be a reality in a year?

I don’t know anything technically. But I feel the fund flows that are coming to Indian equity market could make the valuation adjustment. Whether it is a price-to-earnings ratio (P/E) of 17 or 20, it will happen purely technically. If you ask me on the foreign fund flow possibilities or visibilities, I believe there can be much more fund flows into the Indian markets. And even domestic individual investors may find equity as a safer and attractive bet. So if $20-30 billion of FII money comes into India in the next year, I won’t be surprised. And an equal amount of fresh net domestic buying can happen because our markets have a long way to go. We are too small. If you take Indian market capitalisation, it is about $1.3-1.4 trillion. I feel, considering other aspects of investment, it is the beautiful midcap in the global environment. So this midcap has a potential to become a large-cap. That is the way you should look at not only the economy but even the market capitalisation. And that is the big picture of opportunity for investors in India. But I still hear a lot of people number crunching, looking at some developments and challenges in the economy, and using the word bear market. That is basically because they don’t understand what their market is. And in a growing economy like India, when Nifty goes to 9,000 and then comes down to 8,000 and then due to lack of knowledge it goes further down to 7,000 and below, that is not a bear market. It is only a correction of a rising market.

So what has now changed in terms of sectoral bets?

Nothing has changed, but the perception of investors has changed for each sector. Some say sugar is good or cement is good and those stocks go up. Earlier, pharma was the fancy of investors, but now there are setbacks for big pharma because of uncertainties due to USFDA rulings. So nothing changes drastically in the economy in any of the sectors of the country or the industry, but only the perception changes and that result in a very big volatility in the stock prices of the industry or the company.

Published on April 20, 2016

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