The bull run in the equity market is backed by a strong expectation of earnings growth and is not led by euphoria like in the previous rally witnessed in 2000 or 2008, said Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company.

The risk premium on investment in India is much lower compared to other emerging markets such as Russia, China, Brazil, and South Korea. India is one country where foreign portfolio investors have managed to move out $35 billion without any restriction, he said.

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The confidence to invest and pull out without any hitch will bring in huge inflows into equity markets when the US Fed starts cutting rates early next year, said Shah.

FPI holding at nadir

Incidentally, FPI holdings in Indian equities hover around a 10-year low despite strong fundamentals.

Domestic institutional investors have enough ammunition of ₹3.96-lakh crore to take on foreign portfolio investors. In case of a steep fall, actively managed equity funds can easily pump in ₹89,800 crore, equivalent to 4.62 per cent of cash levels; balanced advantage funds have ₹65,000 crore (50 per cent of net equity allocation), EPFO equity allocation of ₹40,000 crore, and SIP allocation of ₹2.03-lakh crore.

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Kotak MF believes that large-caps are trading at their historic average, while mid- and small-caps are trading at 12 per cent and 26 per cent to their historic average valuation.

The GDP of Maharashtra registered in this year was what India logged in 2005, while the UP and Uttarakhand GDP together is equivalent to the country’s GDP in 2001. The GDP of Karnataka, Tamil Nadu, and Gujarat is the same as what India was in 2000, and there are another 24 States competing to be there at the top, said Shah.

Capex cycle

India is on the cusp of a multi-year capex cycle, with 547 projects attracting investment of ₹2.66-lakh crore in FY23 and surpassing the 10-year high of 541 projects getting investment of ₹1.79-lakh crore in FY17, said Kotak MF.

One of the areas that derails the whole apple cart is the availability of enough electricity to meet the growing demand. There are no major thermal projects being announced or coming on stream in the next few months due to concern for the environment.

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Shah said the government should consider merging a small State-owned thermal power plant operating at a low plant load factor with that of NTPC to ramp up output.

With the elections around the corner, the announcement of populous measures and any surprise in the outcome of the general election itself can upset the market movement, he added.

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