ET Now: Have Indian investors matured enough to go for investing in equities over savings?
Prashant Jain: If you go back to 1992, India invested almost Rs 10,000 crore in a year in equities. More recently in 2008, we invested Rs 50,000 crore in equities. This is a two trillion economy. The household savings is $500 billion a year and what are we getting right now? I mean we are getting may be $5 billion a year, that is 2% of household savings. So yes, we are moving in the right direction but I think we are a long way off from where we can say that Indians have begin to allocate a reasonable part of their savings to equities.
The Indian economy has been compounding in nominal terms, in rupee terms between 14% to 17% a year for the last four decades and that is what the Sensex has also done exactly. The earnings are more cyclical. They depend on economic conditions. They depend on interest rates. They depend on commodity prices and they go through their ups and down. 2008 was a cyclical peak of profitability. 2014 or 2015 is a cyclical bottom of profitability. But these things do not change in a matter of quarters but if you are patient, if you wait for two-three years, you will see it change. So I do not see any reason why, I mean this economy is not slowing down, it is accelerating.
The GDP growth, yes current year is a little low because inflation is low and real growth is yet to pick up but you ask any one of us, I think most would agree that the nominal GDP growth of India for next five-ten years should be close to 13-15% and I do not see a reason why the market should not compound at those rates because market cap to GDP is again quite low.
At the bottom of the earning cycle, the PE multiples will always appear to be very high because the profitability itself is so weak and that is why it becomes difficult to buy into these companies but that is where you have the best opportunities in my opinion.
I think the opportunity in this market lies where the earnings are stressed and that is basically not in the consumer, IT or pharma space. I think these are spaces where earnings expectations are high to my mind and other than these sectors, I think there is greater value for the patient investor.
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Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price