Stock Market

India is not cheap, but isn’t expensive either: Nirmal Jain

The recent dip in the market, due to surgical strikes by the Indian Army across the LoC, is a good opportunity to enter for long term, believes Nirmal Jain of IIFL. Markets have been at an elevated level, he adds.

“If you are an investor and you got money then this is a good time to start investing,” he told CNBC-TV18’s Latha Venkatesh. India’s macro fundamentals are very good. Monsoon has progressed very well, GST is moving well and is not likely to face any stumbling block.

Even with expensive valuations, economy and private sector is slowly turning around, Jain says. “19 times (price to earnings ratio) is not cheap, but not very expensive given India’s growth and fundamentals ahead in next 3-5 years,” he says.

PE multiples can stabalise at higher levels, he says adding that investors always have choice of bottom picking stocks.

Jain expects rate cuts by the central bank in next 12-18 months.

Below is the transcript of Nirmal Jain’s interview to CNBC-TV18’s Latha Venkatesh.

Q: Do you think this is a good time to invest in India?

A: If you are an investor and you have got money to invest, then this is a good time to start investing. India’s macro fundamentals are very good, monsoon has progressed very well. It was one of the best monsoons in last several years, GST is moving very well and hopefully it will not face in stumbling block. The way things are going, government seems committed to get it done by April 1 2017.

So, these are opportunities. In fact market will always react in a knee jerk manner whenever you have news like this but I don’t foresee a war or situation getting beyond a particular point.

Markets can anyway at any point in time there can be something which we can’t foresee today, news can come and correct further as markets have been at an elevated level. However if you are an investor you shouldn’t worry about timing the market to the bottom point, it is not possible but invest from a long term perspective, it is a good time to invest.

Q: We are at 19 times and you yourself raised the issue of valuation so would you buy or would you want to wait?

A: Our economy and the private sector and many sectors are just turning around, many of them have a very high operating leverage. So, 19 times looks expensive on the face of it but given the fact that in many industries margins can improve significantly as we have seen in cement, capital goods, engineering, they are all capital intensive sectors where with the volume increase the operating margin has an advantage of operating leverage. So, market will always look at 1-3 years time.

Secondly as interest rates head downwards globally as well as in India, PE starts with reciprocal of interest rate and you can add and adjust growth and risk. Therefore I will not be surprised if in next 3-5 years multiples have a higher normal and they get stabilised at a higher level.

On top of that you can always do a bottom up stock picking and you will always have good stocks. So, 19 times is not cheap but not very expensive given India’s growth and fundamentals ahead.

Q: As inflation dips you may have lower EPS but you will have higher PE. In that context how much can rates fall? Are you expecting something on October 4? Give us a more medium term view in the next 6 months?

A: Media made rate as sort of an test of RBIs autonomy or something between RBI and government and that got the issue so exaggerated in media that one probably will always be conscious of that. Given that I would think that may be a 25 basis point rate cut one should expect now. However if you look at next 12-18 months more rate cuts should happen in India.

Food inflation has been one component which has kept the overall inflation numbers higher. With good monsoon and higher base I think things should stabilise and look better.

Globally almost more than one third of bonds are giving negative returns and inflation is down then I don’t think India can sustain these high level of interest rates for too long and nor even inflation for that matter. So, if you look at next 5 years, I have a feeling that interest rates and inflation can be at levels much lower than what they are now.