Ravi Dharamshi Explains Why There’s No Bubble In Quality Stocks

“Can we have some sort of a pullback because it has gone up to fast? For sure it will, but if my hypothesis is correct that Covid-19 will only accentuate the current trends, then there’s possibility of few more years of growth left in these companies,” Dharamshi told BloombergQuint in an interview.

In 2008, when a market bubble burst, India’s gross domestic product was around $1.5 trillion and the market cap was about $1.8 trillion at its peak. At the same time corporate profits to GDP were 7% or around $75-80 billion of profits, he said. Today India’s GDP has gone closer to $3 trillion—even though it might slip this year. Corporate profits to GDP have fallen from 7% to less than 1% or to $30 billion. India’s market has fallen 20-30% in dollar terms over the last 10 years in an economy that has doubled, Dharamshi said, adding that if a case were to be made for corporate profit to grow from 1% to 3% of the GDP over the next 5-6 years while the economy grows from $3 trillion to $3.5 trillion, the profit growth would be tremendous.

“If a case like that can be made for the next 5-6 years, the odds are in favour over here,” he said. “To me that doesn’t look like a bubble at all.”

The conversation, instead, is about how any company that shows signs of growth in this liquidity awash world will get higher and higher valuation, he said.

Dharamshi said investors are trying to differentiate between companies that have and companies that have growth, adding that it’s a wrong way to look at investments. They aren’t silos where companies cannot transition between the two, he said.

“It is not about growth vs ,” he said. “It’s where a company transitions from to growth where the most money will be made.”

Watch the full conversation here: