Risks were slowly resolved and valuations became reasonable. These are highly valuedmarkets. But again, there's not much room for the multiples to go up, at least in aggregate terms. I would say that, generally speaking, returns should follow earnings growth or nominal GDP growth, he says.Prashant jainist, Founder,3P investment managers.
Jain also says, “Some talk about recession. I think this will not affect the economy.Indiabut it could affect markets in the short term. If there is a correction, driven by forex flows, I would see it as a buying opportunity and otherwise a very strong fundamental story."
Has your trip so far lived up to your expectations?
I think we're on the right track. Overall, it was smooth sailing. We were lucky. We started well.
Do you regret your decision to leave?HDFC AMCOr are you glad you took the risk of starting an investment company a year ago?
It has proven to be good. I had a long tenure there and I have a very good relationship with everyone on the team and a lot of respect for this organization. I think they did really well, the transition was extremely smooth. it was good for everyone
Good is a word I can also use to define purchases. It was a good comeback for the bulls. When things looked inflated, were there fears of global inflation, weren't interest rates coming down, did the bulls come back spectacularly?
Yes, if you look at the markets the last 18 months have been flat and bound and the temporary correction has led to holding multiples and even interest rates globally seem to have peaked, at least for now. I'm not an expert on this, but I think the risks have slowly been addressed and the valuations have become reasonable.
I would say these are fair value purchases. But again, there's not much room for the multiples to go up, at least in aggregate terms. I would say that, in general, returns should follow earnings growth or nominal GDP growth.
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When you say the valuations look reasonable, I'm assuming you're looking at historical references.
yes, as soon asseveral EPs, usually 1-2 years ahead. So in 3 months we will all start focusing on EF 25. Based on EF 25 the markets are trading 16-17x which is reasonable. It's not cheap, but it's not absurd either. I would say things are fine.
It's a good idea to look at historical benchmarks because when these PE multiples existed in the past, conditions were very different, be it liquidity, underlying economic growth or global interest rates. Is it a good idea to look at historical benchmarks and talk about ratings?
When I look at historical references, I usually see a 15 year average because it covers 1.5-2 cycles. And if you look at the 15-year averages, we're just above that. We expect our growth rate to improve as we move into the coming years. India is gaining more and more prominence and prominence globally. It is becoming a large and rapidly growing economy.
Geopolitically, we are in good shape. We are the good boy in the world. Given the size, growth, a PE of 16-17 seems reasonable and in line with long-term averages, maybe a little higher.
I would like to draw your attention to what is happening with the currents. In 2022, foreign institutional investors were big sellers. And during the calendar year, they were net sellers. Now that we are officially the world's good guy or good guy, what are the chances that this year's flows will reverse and PE multiples actually surprise us on the upside?
This is the only uncertainty that one is forced to mention. This is still a risk, but let's look at it from the other side. When foreigners sold almost $40 billion worth of shares between September 21 and June 22, markets were fairly stable.
The flow of local savings into equities has changed dramatically, and people like you have played a big part in that. The vulnerability of markets, at least in the medium term, to external flows would be much lower, I think. But that possibility can never be completely ruled out because, globally, inflation has so far not fallen as much as markets had hoped.
Some talk of recession. I don't think this will affect the Indian economy, but it could affect markets in the short term. If there is a correction triggered by external flows, I would see it as a buying opportunity and otherwise a very strong fundamental story.
Could it be the other way around that forex institutional investors have been selling and are continuing to sell, but in the last 10-15 days, the tide has turned and now FOMO can hit them and force them back?
If you think a little bit ahead, in a three or five year perspective, India could enjoy a higher allocation in the scheme of things from foreign investors because if you look at the EM basket, India is probably one of the best economies located in the ME. basket. So, over time, we should continue to attract larger flows. So call it FOMO or whatever, India - a $3.5-4 trillion economy, growing 6-7-8%, pretty much ticks all the boxes. I would say anyone with a medium to long term perspective would want to be overweight in India.
He's been a big supporter of banks and particularly big banks and banks that have strong CASAs and a great balance sheet. Now this trade worked like a charm. What looked more like a consensus view has become a consensus trade, which is overfunding. Do you think that even though there is a consensus view and a consensus negotiation, the consensus prices did not reach there?
Most now agree that stock prices have moved wildly. Most people would agree that banks are in a good place. The swings are very clean. Credit growth is reasonable and profitability is holding up well. I would say that these banks should continue to do well and that the valuation gap between banks, what we used to call retail banks and corporate banks, has now converged. In fact, this gap is becoming less and less important because the asset side of almost all the big banks is more and more similar to each other.
So the revaluation part of the deal is over. But this represents a sustainable growth business. One should be able to earn returns in line with the increase in profits. Banks should increase profits in the medium term, just beforeskilful. There's still room for superior performance there.