D-Street veterans gung-ho on stocks
Oct 22 2013 , Mumbai
According to them, only foreign investors have realised the long-term potential of Indian stocks as domestic investors are exiting whatever stocks they are left with at every market rise.
However, to attract more foreign investors into the Indian market, we need to create more bluechips like Infosys and HDFC Bank, as FII investment in several high quality stocks has touched the maximum available limit and it cannot go up further in a big way, said Nilesh Shah, CEO of Axis Capital.
Shah said FIIs have invested a total of $270 billion in Indian stocks, owning 25 per cent of market cap, becoming the biggest investor group, second only to the promoters who own 55 per cent in listed companies’ universe. As on that, FIIs own 44-45 per cent of the free float (promoters stakes are not traded).
For instance, foreigners own about 50 per cent in Infosys and above 40 per cent in HDFC Bank.
To attract huge amounts of foreign capital, Shah suggested listing of government-owned insurance behemoth Life Insurance Corporation (LIC) and the railway monolith, Indian Railways! He was speaking at the Morningstar Investment Conference.
Making a case for stocks, Sunil Singhania, head of equity investment at Reliance Capital AMC, India’s second largest fund house, said that the phase local stocks were going through at present would pass soon.
He pointed out that when the Indian market had peaked in 2008, stocks were trading at 28 times their earnings multiples. “Now when we are near the all-time high again, the market is trading at a price-to-earnings multiple of 14 times, indicating that the market is much cheaper. Earnings (of Indian companies) have doubled, but the market is still at the same level,” he added.
Some other experts pointed out that the most-sought-after asset class these days viz., gold and real estate, have also gone through rough patches in the past. For instance, gold was down 64 per cent between 1984 and 2004 while real estate prices fell 50 per cent between 1994 and 2004.
Nimish Shah, director and head of investments at Citi Private Bank, pointed out that Rs 1 lakh invested in Sensex 33 years back would have grown to Rs 12.5 lakh today while the same amount in gold would have gone up by just Rs 2 lakh.
Another interesting aspect that Reliance Capital’s Singhania pointed out was local investors’ over-reliance on fixed deposits. Investors put money in, say, banks like State Bank of India for 8-9 per cent returns on FDs.
The banks, in turn, lend it to companies at 12-13 per cent, which means companies earn much above 12-13 per cent from their businesses. “Then why can’t investors put at least some of that money directly in those companies,” he wondered.
Assets of the Indian mutual fund industry stand at about Rs 8 lakh crore today compared with Rs 80 lakh crore bank deposits.
“When our market hit the all-time high in 2008, everyone was happy. Now we are nearly there again, but no one is happy,” said Rashesh Shah, founder and chairman of Edelweiss Group, summing up the mood on Dalal Street.
Though foreign investors have been busy buying Indian stocks, the behaviour of local investors is quite the opposite.
“There has been very determined selling by retail investors of whatever little shares left in their portfolios at every rise,” said Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services, a brokerage and fund house.
Even domestic corporate houses have little confidence in Indian stocks, Agrawal said, explaining the mood in his interaction with local investors.
According to him, sovereign funds, pension funds and global ETFs may be buying Indian stocks, as he could not find one foreign investor with less than $100 million allocation to Indian stocks during his investor meets abroad.