Asset manager Old Bridge Capital said that India’s market capitalisation to GDP ratio is at an all-time high of over 100% which indicates overvaluation and the need to exercise caution as the market may have priced itself ahead of the curve.
In 2024, small and micro-cap segments are prone to volatility especially those with rich valuations and mega caps emerge as a better choice due to better valuations, said Kenneth Andrade CIO of Old Bridge Asset Management
Andrade said that pockets in the large-cap segment are expected to protect capital and provide incremental returns.
“2024 is expected to be volatile due to upcoming elections in India and other countries but reasonably attractive businesses can help navigate the turbulent tide,” said Andrade. “The correction in markets is probable if liquidity is sucked out of the markets. Since insolvency is off the table, valuation risks remain.”
Despite the short-term challenges, the overall trend is favorable for India compared to the peer countries in the region, he said.
India’s robust corporate financials are supported by all-time low leverage enabling companies to invest their cash flows for growth. The capital expenditure by the government and stable macroeconomic environment also enhances the corporate growth story, according to Old Bridge.
Andrade said that a large capex cycle trend is a key theme going forward– one of the largest yet.
“The geopolitical conflicts have regionalized and created a growth lever for the economy. The focus on bringing supply chains back within the countries has led to the capex cycle, likely to continue for the rest of the decade.”
Asset-backed sectors and large-cap commodities are poised to do well but earnings yield and the price paid for them will be key, said Andrade.
