Well, the Nifty which was kind of hesitating to make the all-time high, has not only crossed that level but is now almost at 19000. You have been watching Nifty right from the beginning? It has become the choicest of instrument. But of course in the last 18 months was sideways. Do you see at beginning a new expansion in the market from here on?
I think the good part of the highs that we are making now is that the market has made a couple of attempts in the last 18 to 24 months to kind of cross these levels and we have been hovering around these levels.
So there has been a significant time correction or a significant value correction as you might call it. And from that perspective, these levels that we are seeing today are healthier than similar levels that we saw in, say maybe end of 2021.
So that makes one feel a little bit more comfortable. Second is that at least we do not seem to be witnessing from our world of mutual funds and asset management, we definitely do not seem to be seeing euphoria.
In fact, if I can tell you what I am seeing on ground, I am actually seeing that a lot of people who may have invested in 2021 because that is when a lot of money came in those people were actually not making any return until very recently.
So generally I have seen that when somebody invests Rs 100 and for a longish period of time, the 100 is hovering around 85-90. The moment it comes back to 105-110, there is a tendency to take the money and scoot. So actually, if you take mutual fund industry flows my sense is that they are quite anaemic right now, at least as far as net flows are concerned. We are seeing outflows from what I can see, same across in most categories of mutual funds. Plus people who have invested earlier, say in the past, they are also seeing handsome double digit return. So when market makes new high, there is a tendency to book profits and take some money off the table. So whether it is somebody who invested in the peak in 2021, or it is somebody who is a long term investor, what we are seeing that there is not much exuberance or not much euphoria. In fact, in the early stages of new highs, people seem to take money off the table and that is what is happening right now.
You have seen economy as well as market for a very long time. And now they are saying that Indian market is at a cusp of a take-off because it has attained a very superior kind of a status in the global system in order, why because demographics are good. The quality of earnings are very superior and now it can, the market has become kind of deep enough to absorb big money. FIIs have come back too. I want to understand next three to five year outlook. Should we be ready for much higher levels? I mean, can we see say 30,000 or 40,000 on Nifty in next less than 10 years?
Yes, I would say amen to what you are projecting or what you are saying. But you know, always difficult to forecast, and sometimes what happens is that if we get too bullish or too exuberant in our forecast, then we are setting up for very high expectations.
And then we end up disappointing a large part of the constituency. But I would put it this way that while it is difficult to figure an index level at a particular point in time, frankly, I do concur with your observation.
It is difficult to put an index level at a point in time, but I do concur.
And I am in your school of thought. Let me tell you my reasons for believing that way. See, one is you are right that whenever we have the opportunity and at White Oak we do have some vantage point where we get this opportunity to interact with global investors.
Now, what I have seen is that for the longest point in time India used to be just one allocation in an emerging market fund or Asia fund or a global equity fund or a BRICS fund.
And I have even had the opportunity of meeting investors who thought that they had not invested in India. And then on second thought, they realised that well, yes we do have money in an emerging market fund. And I am told it has some 7-8% in India and that is the scenario five years back.
But today, what we have and compared to this, China has been a single country allocation more like a deliberate allocation in people’s portfolios whereas India was more the buy or maybe a lesser known or lesser appreciated indirect allocation in global investor portfolios.
Over the last five years, more so in the last couple of years, definitely one can see that that willingness to look at India as a single country deliberate exposure has kind of gone up.
The fact that we manage about $4.5 for global investors investing in India and we are, of course, a single country FPI that is our global business.
You can see that this kind of growth can come about only if there is a critical mass of discerning investors who are willing to look at India not just as a component of emerging market but look at India as a growth story or a single country asset class on its own.
So I think that is a rising phenomenon which will evoke more and more investor interest into India that is one.
Second is, of course, there is also a bend on the road because the trajectory of US economy and the trajectory of US monetary policy and hence, the trajectory of their interest rates and the strength of the US dollar some of these things seem to have changed in the last three to four months.
And that also will result in higher interest in emerging markets as an asset class. And within emerging markets as an asset class why India should stand out, there are abundant reasons for that, some of which I even said just a minute back.
So my sense is that after March-April onwards, trajectory for emerging markets has changed. And hence, the appreciation for India will also be more manifested in the flows that we are going to see.
And the third thing why I concur with what you mentioned is also that while the world will be looking for growth, the fact is that in the next few years India will contribute a higher and higher proportion of the annual incremental output of the world’s economic growth.
So if world GDP grows to 2-3% in a year and adds a couple of trillion dollars of incremental output, if India can contribute 200 billion, 300 billion, 350 billion, these kind of numbers to the world’s growth, then we will seriously be a destination for incremental investment.
So a lot of these things are happening together. Our relative performance definitely helps. Institutional mechanism, the rule of law all of these matters, a democracy which results in respect for property rights, I think all of these things matter when it comes to market performance.
In fact as someone, who you follow very closely Mr Buffett keeps on saying that large part of his secret of this massive wealth has been, he has been lucky to be born in America at that time. So we also consider ourselves very lucky to be at this stage and phase of our lives and passing through such amazing time in our great country. But I want to talk to you about the street is very divided. Not everybody is very enthusiastic right now in the market. Yes, there are all times high on Nifty, Bank Nifty, midcap, small caps are still far away. But there is very large section of the market which is questioning this quality of rally and are bracing for a correction, almost expecting one. You mentioned that you have tools to measure euphoria in the market or froth. How do you sense that?
I think that the positivity, I will put it this way that anybody who has even a couple of years of time, let us say, I can imagine that anybody who is fearing a correction or bracing for a correction, I can appreciate what possibly the reasons would be two or three things when it comes to say US policy and the US economy maybe the elephant has passed, but the tail is still kind of out there.
So how does the data come out in the next couple of months? What type of Fed stance are you going to see? Is the pause going to sustain or are you going to see a couple of more rate hikes? So I think these kind of concerns will linger.
Second is in our country, obviously, general election is a big thing. So I can imagine that next six to 12 months, the headlines will be of all hues and all shades.
So that also causes some consternation in terms of continuity. Some people might postpone investment saying, okay let the event get out of the way. And then we will see how things play out. So these are just right up there a couple of things for us to keep in mind as to what can cause volatility.
But I do not think any of this will take away from the former part of our conversation. The reality is that if you are investing in India’s markets in the 2020s and the 2030s and you mentioned Mr Buffett, obviously, he said what he said because his investment career coincided with the decades when America became a significant economic power.
We are not in the same setup as America was in the 50s, 60s and 70s. They are not just a dominant economic power, they are the biggest. So we are not in that same spot. But I think it is comparable in the sense that there is a point in time in the evolution of a market. If you find yourself participating in the market at that juncture, then you are lucky.
So a lot of us would find ourselves in the right place at the right time but then we need to do the right things. And the right thing is precisely to overlook and brace for short term volatility. Do not get thrown out, do not do anything aggressive whereby you would get thrown out of the market.
And from where we are sitting right now even if we can hold on for the next year and a half to two years, I think you will tide over a lot of volatility and there are some good times ahead then.
