“Most of the FIIs preferred China and other EM peers over India and are revisiting their exposures given nuances of those markets,” says Jiten Doshi, Co-founder & Chief Investment Officer, Enam AMC.
In an interview with ETMarkets, Doshi who has over 30 years of experience in capital markets said: “India offers among the most contemporary market sophistication, architecture, transparency and a distributed structure when it comes to spread of corporates/investors and sectoral opportunities,”. Edited excerpts:
As we step into FY25 – how do you see markets in the next financial year? Do you see a double-digit return?
Jiten Doshi: We are not in the business of assessing prospective returns, though with sufficient rear-view review, one can say that prospective returns have four components – underlying GDP growth, inflation/interest rate movements, commodity cycle contribution in the cash flows, and the starting point valuations.
Over the last 5/10/20 years markets have given a CAGR in the range of 12-14%. We are coming off from a year of 40% return (which was preceded by a flat year earlier).
Add to this being an election year – which adds its own uncertainty in 1HFY25E. We remain hopeful and cognizant from the factors like long-term economic variable, relative macro-stability, favorable long-term demand-supply factors and better-quality balance sheets – which make India up for a good base for a multi-year growth story primed to deliver 5-year CAGR returns in double digits.
If the election outcome extends the current political regime to extend and build-up on an established policy paradigm.
In terms of earnings – how do you see India Inc. faring in FY25. P/E multiple has expanded but there is a lot of catch-up which earnings have to do. Do you see earnings recovery in FY25 especially in the small & midcaps space?
Jiten Doshi: As highlighted, corporate balance sheets are in good health. The 3–4-year period of inconsistent external environment has stress tested many of the corporates (whatever scale they are) in terms of their business model, balance sheets, resource competencies and cash-generating capabilities.
The survivors are in spring-back mode. The K-shape recovery has dragged the expected recovery in consumer demand yet to be back in full swing.
One can expect all three components of the economy – individuals, corporates and households – to be in better shape as we enter 2HFY25E.
Corporations have only witnessed part benefits of the softer commodities and would need continuity of softer input costs and revival in consumer sentiments.
Global recovery would be an important variable for export-oriented businesses. It will remain to be seen whether that recovery reflects completely in share price performance – as the market optimism has part-discounted some of the positives.
Businesses with built-in differentiation/USPs, and niche positions in Value chain would continue to trade at premium though. Further, sustenance of high multiples would witness higher supplies from promoter/PEs encash in part or full.
If someone with a high-risk profile plans to deploy Rs 10 Lakh in FY25 – what would be the ideal sectoral allocation in his/her equity portfolio?
Jiten Doshi: Risk is only one part of the equation. One needs to be clear on how he/she defines risk. According to us, risk is a permanent loss of capital.
For us it enables building margin of safety into our investing ideas. Our experience suggests that any investor, who is willing (proclaiming!) to take risks, is seeking excesses from something that is already performed and is in momentum.
Many times, it is like riding a tiger or catching a train in motion. One needs requisite agility and awareness of highest order to come out unscathed from such expositions.
In the current environment, good risk-adjusted returns are available in selective home improvement, pharmaceuticals, capital goods, private sector banks, infrastructure (& allied segments) and automobile space.
How are you looking for Gold in the next FY?
Jiten Doshi: Our focus is on listed Indian equities. However, servicing the UHNI clients one needs to be cognizant of alternate assets and their relative attractiveness.
The world we are living in is in transition on the core practices of capital markets and current financial architecture. In this world fiat currencies are extensions of political regime and reflect economic, social and political might.
We are shifting sand on capital, commodities, currencies and global power. In this environment, the central banks will be forced to increase their exposure towards Gold among their reserves.
UHNI segment – which operates across continents will be forced to diversify accordingly for any hedge against a black swan economic events that question their belief currencies.
In India Gold has sentimental value and will continue to remain the same. We will not be surprised that a strong GOLD environment will benefit India in the long term.
What would be the ideal asset allocation looking at the domestic and global factors in the next financial year assuming someone is in the age bracket of 30-40 years?
Jiten Doshi: Asset allocation is a function of demographic profile, income levels, risk appetite, life stage(s) and goals (time & quantum) being sought. Therefore, it is difficult to generalize the advice. There are four golden rules –
a. Invest and then spend the remaining
b. Equities = 100 minus your age
c. Remain committed to compounding as far as possible
d. Rebalance periodically
So, for a high-income individual one would suggest 60% Equities, 30% Debt, 5% Gold and 5% Cash (for contingencies and responsibilities).
FIIs took a back seat in FY24 – how do you see foreign investors positioning themselves in FY25? What is holding them back?
Jiten Doshi: There was a period in India when FIIs mattered to the direction of the markets. However, over the last 3-years Domestic institutions have invested ~3x the monies that FIIs have invested. Almost USD50 bn left India in FY22-23 – and the markets scaled a new all-time-high.
FIIs are guided by allocation criteria such as benchmark composition, market ownerships, growth and return profiles and relative valuation attractiveness. Most of them refrained from India in the initial part under the garb of expensive valuations.
Their level of excitement in India is high, though valuations an issue. Most of the FIIs preferred China and other EM peers over India and are revisiting their exposures given the nuances of those markets.
India offers among the most contemporary market sophistication, architecture, transparency and a distributed structure when it comes to spread of corporates/investors and sectoral opportunities.
High interest in Indian markets not only among the EM managers but also among funds with global mandates, though no significant overweight position on India.
For them to be seriously invested in India, corporates need to maintain consistency in delivery of earnings and/or with performance the India weightages in their benchmark keeps creeping upwards.
Will FY25 be another blockbuster year for IPOs? We saw many SME IPOs but not many mainboard IPOs hitting D-Street. Any specific reason for this mismatch?
Jiten Doshi: IPOs indicate that there is an appetite for new investment opportunities. Generally, these come after existing investors have made enough money in the preceding time period.
Investors flock to assets with recency bias while expecting to yield prospective returns that match what were delivered yesterday. IPOs also take out some froth from the market that is created purely due to liquidity.
The operative rule sets for SME are different. They attract a different class of investors that possess expertise/ appetite/ fetish to exploit the arbitrage available due to lower disclosure/compliance requirements, information asymmetry, restricted liquidity, and high-ticket-size investing.
For a market high on liquidity and seeking quick returns it has been an obvious place of exploitation. While some good companies have got listed – the higher risk appetite of new-to-the-party investors made its heady concoction in last year.
We are blessed with being among the most progressive and proactive regulators in the world – where there is focus on removing every single white space of misrepresentation, irregularities, opacity and unfair practices.
While what we witnessed was a frenzy in SME space – like every cycle – it will have its winners and losers.
Corporates that are backed by sound promoters, prudent advisors, robust business models and a business proposition of scalable profitability, will mature and migrate to a main bourse and attract a better profile investor class.
There is a lot of talk around valuations which have turned slightly expensive compared to peers. Is that something that is a sign of caution for investors in the new FY?
Jiten Doshi: Markets are not expensive or cheap – stocks are. Value is the discounted present value of future cash flows. What is important is to assess the future cash flows of the firm (timing, frequency and quantum) through eternity and discounting them correctly (depending on return expectations, risk appetite, and existing capital market environment).
The term cheap or expensive is relative in its own space too. Price therefore is the right component to be put in that context – being High (expensive) or Low (cheap).
Sustained domestic flows have contributed for lower drawdowns during corrections, ensuing a lower volatility and a second derivative outcome of relatively higher multiples for India.
Nifty Index currently trades at ~70% PE premium to MSCI EM ex China, which is ~10 ppt above its average. Relative P/E against MSCI EM is at 1.7x. The 12-month forward P/E rose to 22.4x. Absolute P/B rose to 4.1x.
When one wants to look at relative attractiveness – based on empirical performance history EY-BY (Earning Yield vs Bond Yield) is a good benchmark.
As things stand at the existing EY-BY gap of -2.88 – market suggests low-mid teen CAGR returns over the next three years.
While a decent portion of these premia exist on account of reasons like better return profile of India Inc, a more distributed & contemporary market structure, and a better governance architecture – in an otherwise complex investing landscape; going forward earnings growth and its visibility would be among core drivers of equity performance.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
