Ridham Desai On India Stock Market, Inflation Woes And Bets For Samvat 2078
India may lag peers in the new Samvat 2078 but investors should have a view for three to five years, not 12 months, according to Morgan Stanley’s Ridham Desai.
It’s fair to expect some relative underperformance in India versus other markets, mainly because it has been a rank outperformer in the Samvat drawing to a close, he told BloombergQuint’s Niraj Shah in a Diwali special interview ‘Saal Mubarak’. But staying invested in equities will lead to desired wealth creation, he said.
Besides India-specific issues, cooling global markets could prompt domestic equities to underperform, said Desai.
China, however, will beat Indian stocks in the near term because of its recent underperformance and waning fears of regulatory action in the country, he said.
The Inflation Conundrum
Desai sees inflation as a worry. There could be volatility when central banks, particularly the U.S. Fed, hike rates, he said. But the real problem, according to him, may be central bank inaction despite inflation fears. In the course of the year, he said, markets would like if central banks stay ahead of the curve and act, he said.
Large Versus Small Caps
Desai finds safety in large caps.
Small-cap valuations are at the peak last seen during 2006-2007 and a corrective move is not unwarranted, something that Indian markets have already started seeing in the last few days, he said.
The decline, however, may not necessarily be big because small-cap earnings have not peaked, and so earnings momentum may offer support, according to him. He sees large caps playing catch-up or at least narrowing the performance gap with small-cap peers.
Desai suggests investing in domestic-focused themes.
There are clear signs that the government understands the importance of capital markets and domestic job creation, he said. A combination of this, according to him, could mean that the domestic manufacturing sector could do very well.
Manufacturing, Desai said, could do better than services. But a simple way to play most themes would be BFSI (banking, financial services and insurance) where valuations are not very steep either. Desai also expects autos and industrials to outperform. By highest earnings growth relative to the past decade, residential real estate is his biggest bet.
Desai, however, cautioned about fintechs disrupting the financial space.