The fund manager says India stands out globally for its stable growth and moderate inflation, which differentiates it from China, where economic growth has been slowing
Indian stock markets started the current month on a muted note falling nearly 4 per cent in the last five sessions following the escalation of geopolitical tensions in the Middle East and the rebound in Chinese equities. Elevated valuations in India and cheap valuations for Chinese stocks triggered the FPIs to follow a ‘Sell India, Buy China’ strategy.
Against this backdrop, Outlook Business spoke with Harsha Upadhyaya, CIO-Equity at Kotak AMC to discuss the current scenario of the Indian equity market, the implications of recent regulatory changes and concerns around valuations.
Given the ongoing geopolitical conflicts and China's efforts to re-establish its presence in the markets, how do you evaluate the current conditions of the Indian markets and the overall economic landscape?
In terms of political and geopolitical events, there are numerous developments occurring, especially with upcoming elections. It is challenging to predict the outcomes of these events accurately. However, India has demonstrated remarkable resilience amid global uncertainties. Our growth trajectory and the way we have managed inflation have been notably effective.
India stands out globally for its stable growth and moderate inflation, which differentiates it from China, where economic growth has been slowing. Although the Chinese authorities have implemented various policy measures to stimulate growth, it remains to be seen if these actions will be sufficient.
Despite these global challenges, I believe that India will continue to be a preferred destination for foreign investors in the long term.
SEBI has recently introduced a new asset class for high-risk investors. What is your perspective on this initiative, and do you have any concerns regarding it?
I believe we need to observe how this new product category is implemented. It is designed to attract a different set of investors compared to the traditional mutual fund market, which currently serves a broad base of smaller investors. This new fund will likely require a higher ticket size for investment. Therefore, it’s important to understand the full scope and structure of this asset class before drawing any conclusions about its potential impact and effectiveness.
Kotak is introducing a new fund focused on multinational corporations (MNCs). Why should investors consider investing in an MNC fund?
MNCs are well-established companies with experience in managing businesses across diverse global markets. They typically possess superior technology and have a strong track record of navigating various economic cycles and regions.
Financially, these companies are generally better managed, exhibiting low debt-to-equity ratios and high dividend payouts. Over the long term, they tend to show lower volatility, particularly in a market characterized by high valuations. This makes MNC funds an attractive option for investors seeking a more stable investment experience.
Additionally, the MNC theme encompasses a wide range of sectors—covering at least 15 different industries—ensuring diversification. The fund will also have a slight tilt toward large-cap companies that present relative valuation comfort. Historically, MNCs have delivered decent returns with reduced volatility, which is an important consideration in the current market conditions.
What challenges are multinational corporations (MNCs) currently facing in India, and how can they address these challenges?
Business challenges are inherent to all companies, whether multinational or domestically owned. Many MNCs have established a strong presence in India, having been in the market for decades, with well-recognized brands and proven technological advantages. These strengths position MNCs favorably to navigate various business challenges.
However, it is important to acknowledge that each company will encounter its own specific hurdles. MNCs must continuously adapt to the local market dynamics, regulatory environment, and competition to effectively address these challenges. By leveraging their established capabilities and focusing on innovation and local partnerships, MNCs can overcome obstacles and maintain their competitive edge in India.
How do you select the companies that are included in the fund?
Our investment selection process is supported by a dedicated team of 16 analysts who evaluate companies across various sectors. They provide recommendations based on thorough analysis and also develop a model portfolio that serves as a guiding framework for our investment managers.
Our investment managers create portfolios that align with this mandate while incorporating insights from the research team. This approach ensures that the portfolio is well-suited for long-term investors.
Which sectors or themes do you believe will drive growth in the Indian market?
Currently, there are 14 to 15 different sectors in the Indian market. Some sectors, such as FMCG, consumer durables, banking, and IT, are expected to be particularly growth-oriented. Many companies within these sectors are currently undervalued.
We are set to launch our fund next Monday, and once we receive the capital, we will assess the valuations of the available investment opportunities to identify the best options for growth.
There is a debate about market valuations. Some argue that high price-to-earnings (P/E) ratios in the Indian market are a concern, while others point out that Indian markets have historically had high P/E ratios and emphasize the importance of other metrics, such as return on equity (ROE) and return on capital (ROC). What is your perspective on this issue?
India has always exhibited stable political conditions, and its market includes a diverse range of sectors. In contrast to markets like Taiwan, which is heavily reliant on semiconductors and electronics, India's economy is more balanced, allowing for more resilience.
While it's true that Indian markets have traditionally traded at a premium, current valuations are even higher than the historical average. This premium may appear justified, but it does raise concerns about whether valuations are sustainable in the long run. Therefore, it is essential to consider a broader set of metrics, including ROE and ROC, in addition to P/E ratios when evaluating investment opportunities in India.