Retail investors to fuel next phase of market rally: Axis Capital

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Indian stock markets are trading near historic highs on the back of a record-setting rally. The Nifty is inching towards the 6,800 levels, while the Sensex is close to 22,500. The sharp rally in stocks has led to some caution and profit taking. However, Nilesh Shah, MD & CEO of Axis Capital says that markets are not overvalued.
“Since 2008, our economy has doubled in terms of size and the valuations have come down from over 20 times of earnings to around 14 times of earnings. So, the rally is not surprising” said Mr Shah.
Mr. Shah believes that macros are going to improve going further and the receding commodity prices will help India’s manufacturing sector.
“Our manufacturing sector suffered due to rupee depreciation in last two years. Now rupee is at a fair value. We will see export gaining momentum which will create jobs for India…. softening of inflation will be of huge benefit for corporate India” said Mr. Shah. Inflation is likely to come down to 6 per cent by mid of this year, he added.
Mr. Shah says corporates have resorted to lot of cost control measures over the last five years, but now that a platform has been built for earnings growth. As earnings grow, Indian equity market will be supported by pick up in valuation, he added.
Mr. Shah says retail investors have been investing in physical assets over the last three years, and as of today, they have less than 6 per cent allocation to equity market. This is probably the lowest ever allocation for Indian investors, he says.
“Going further I expect movement from psychical asset to financial asset and within financial asset from debt to equity,” said Mr. Shah.
Mr. Shah sounded confident about overseas investment that has been the biggest reason for the upside in Indian markets. Although the US is tightening now, Europe and Japan are still in easing mode, he says, adding that if one door is closed then another door is opening.
“We are receiving $20-30 billion through FIIs and another $30-40 billion through FDI. So combining both we get 60-70 billion dollar, which is not a big amount whereas global liquidity is concerned. Fed is tapering off on incremental liquidity. But the liquidity which Fed has already pumped in is too large and will flow to India. If India maintains the growth momentum then getting $60-70 billion dollar will not be a problem. This flow will accrue to us provided we deliver that kind of growth,” said Mr. Shah.