Radhika Gupta
Photographer: Kanishka Sonthalia / Bloomberg
Photographer: Kanishka Sonthalia / Bloomberg
A record price-to-earnings ratio for Indian equities should not act as a deterrent to investors, according to Radhika Gupta, head of Edelweiss Asset Management Ltd.
Gupta, the only female CEO of a major asset manager in India, says it is “risky to be underweight” at a time when local stocks remain “strong” driven by liquidity. Her firm, which oversees 465 billion rupees ($ 6.4 billion) in assets, is putting her money to work: an Edelweiss balance the fund, which invests in both shares and bonds, has increased its equity allocation to around 75% from just 30% in March.
“Forgetting a single value or P / E is not the right way to judge the market at a time when domestic economic activity is down and you have such high liquidity,” she said. “We are business buyers. We look at corporate earnings, the domestic economy, flows and risk appetite. ”
S&P BSE Sensex, India’s benchmark, rose about 90% from its low during the March 2020 loss, hitting new highs on the road. The rally fueled by the central bank’s liquidity and foreign flows have been trading more than 23 times its earnings over a 12-month period. This is compared to an average of five years, about 18 times, according to data compiled by Bloomberg.
Sensex has fallen 0.6% since 10:16 a.m. in Mumbai on Monday, following large declines in Asian stocks. He finished his 11th consecutive week of earnings on Friday.
Gupta’s optimism is at odds with the growing concern of many market watchers that Indian stock prices have outpaced as the economy prepares for the largest annual contraction of records since 1952.
Last week, the Reserve Bank of India also warned of the rally, citing an expansion “Disconnect” between certain sections of the financial markets and the real economy. The RBI will do the same it is starting to withdraw cash from the banking system as it tries to return to normal liquidity operations from the emergency measures imposed by the pandemic.
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Earnings, data
Gupta, on the other hand, points to the improvement in corporate earnings and the strength shown in recent months by high-frequency economic indicators, such as exports, car sales and production output, amid rising consumption. Analysts polled by Bloomberg revised 12-month earnings for Sensex members by about 20 percent from a July trough.
“Much of the uncertainty surrounding the markets has decreased,” she said. “The second quarter was good for the company’s earnings, driven by margin expansion, the risk of queuing for banks was limited and some ongoing government reforms tell you that the risk of downside is not very high.”
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Foreigners continue to pile up in Indian stocks after buying $ 2.4 billion net in two weeks in the new year, after accumulating $ 23.4 billion in 2020. This was the highest since 2012.
“Vaccines and the low interest environment we are in could be a great thing for emerging markets,” such as India, Gupta said. “We hope to see a better performance scenario than expected for the corporate sector. With the blockages open, we expect revenue to return. ”
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(Add Monday’s movements in the fifth paragraph, update prices throughout.)