....................................22 Sep, 2010, 01.24PM IST,ET Now
Nilesh Shah, Deputy MD, ICICI Prudential AMC, spoke to ET Now on whether the current market level of 20000 is sustainable or not, and where will the markets go from here.
Excerpts: ET Now: Do you believe the current level of 20000 is sustainable or do you see a correction going ahead? Nilesh Shah: There is excitement, no euphoria, and there is no bubble in the equity markets. Our 20000 is backed by pretty strong fundamentals. But my point is that do not look at 20000. It is just a level in the journey. When I started my career, people said 1000 is a level of index which will never be breached. Today who talks about 1000? And it has just happened in the last 20 years or so. So the point is that like 1000 came and went by, 20000 will come and go, provided you can give time to it. So do not just look at this 20000 as a peak. We will cross this many a times over many more years to come.
ET Now: A lot of people talk about valuations being stretched or the fact that the fund flow that is coming in at this point of time could actually take a bit of a pause in the near future. There are a lot of ifs and buts in the markets at this point of time. What would you as a fund manager suggest investors to do? Should they be cautious, should they be confident or should they just be nimble footed at the current levels ?
Nilesh Shah: I will recommend investors not to look at the market. Market goes up and down. 20000 is no different from 10000 and it is no different from 15000. As an investor, it is your job to be always careful about your money. It is your hard-earned money. At the same time, you always have to be confident about future. It is very rare to see a pessimistic man making money in the market. It is always the optimism which prevails and third, you have to be cautious because you always have to worry about the pitfalls which may come in the future. At the end of the day, you have to balance your risk and return, and whenever the opportunities of return is higher than the proportionate risk you are taking, that is a great investment and whenever your risk is higher than the return, that is the investment which is worth avoiding.
ET Now: Given the wide range of investors, return expectations, so on so forth, what about valuations? At the current levels, do they look a bit stretched ?
Nilesh Shah: In today’s market, what is happening is that we have different sets of investors who are investing in. As an Indian investor, my risk free rate is, say, 10-year government securities at around 8%. On the same hand, the American investor who is investing in India is looking at his risk free rate of under 3% on a 10-year security. A Japanese investor who is investing in India is looking at under 1% on his 10-year security. So Japanese investor’s risk free rate is 1% and his return expectation could be 5% from Indian equity. So he can afford to pay much higher prices compared to me. So because of that combination of flows from different sets of people who have different sets of risk profile and return expectations, it is becoming difficult to take a call on whether markets have become expensive or not. What we are saying is that based on our historical average. The Indian markets have traded around 15 to 16 times one year forward earning. Today we are trading at about 18 times one year forward earning. So let’s remember the fact that we are trading above our historical averages of the last 15 to 20 years.
No comments:
Post a Comment