“What is the
price related to what value we are getting in the market?
Assuming
there are no further big shocks and we return to normalcy in the year, then I
think the price we are paying is a very good one for the value we are getting.
And
why do I say this? It is true that FY21, the current fiscal Indian economy is
likely to contract. But, I think we will recover equally fast in Fiscal ’22,
because most of the negative growth in the current year is a result of the loss
of economic activity for the period of lockdown and assuming normalcy returns
that should not be there.
I
think interest rates globally and in India are extremely low. Low oil prices
work to our advantage. And, we have seen in the past that good reforms or many
reforms are carried out in such situations when you are pushed against the
wall.
We
do expect some more reforms. And, I think the long term drivers of growth in
India are intact. And, bear in mind that one year of disruption in the economy
or to a profitable business, it does very little damage. The damage could be
may be five odd percent damage to the intrinsic value of a business.
If
we look at India's current market-cap to GDP or price to book value, it is now
near all-time lows. And, what we have experienced in the past whenever India's
market cap to GDP has fallen below 60%, which is where we are roughly at
current levels. The next three five year returns have been extremely strong.
What
has also been experienced is the best entry points in Indian markets have been
provided around periods where FIIs were large sellers.
In
fact, on every such occasion or whenever over a three month period FII selling
was large, just around those times your returns were quite decent.
That
is also an interesting data point because we have seen very high levels of for
selling by foreigners in the last few months, so net-net, I feel the
risk-reward that the market offers at this stage is actually quite favorable.”
Above is what
Mr. Prashant Jain (ED & CIO) has to answer so summaries all the questions
in our mind in the prevailing market and geopolitical scenario…
A Guiding Force - going forward…
