New Delhi
The stockmarket is getting ahead of itself and the valuations and investors’ expectations are becoming a concern. There is rampant speculation, as shown by F&O volumes and IPO investor exits. Everyone boasting about the money they have made in shares is a sure sign of a bubble. However, with more and more savings going into equities, and the return on equity outperforming all other assets over the past five years, financialization is helping creation of value in the economy.
These views were expressed by a panel of market experts at the 51st National Management Convention of All India Management Association (AIMA).
Mr Vishal Kampani, Non-Executive Vice Chairman, JM Financial Ltd pointed out that the market capitalization has gone up to 1.5 times of the GDP, the demat account holders’ numbers have crossed 17 crore, the rise of domestic investor has reduced the influence of FIIs, and there is a queue at SEBI to raise more than 2 lakh crore funds from the markets. However, he wished that all this money goes into creating long term value and not in speculation.
Mr Vetri Subramaniam, Chief Investment Officer, UTI Asset Management Company Ltd pointed out that the investors expect more than 15%-20% returns when the economy is growing at 6%-7%. He pointed to the SEBI’s finding that most of the IPO investors get out of those holdings within 30-90 days. Even the SIPs show a momentum seeking behaviours, as hardly anybody stays invested more than two years. More and more savers are opting for mutual funds over bank deposits. While such behaviour is a concern, the democratization of the access to capital market is good for the economy, as more entrepreneurs can raise money from the market, Mr Subramaniam said. He pointed out that earlier the universe of equity researchers was about 150 companies and that has expanded to more than 5000 companies.
Mr Ashish Dhawan, the erstwhile founder of private equity fund, Chrysalis Capital and now the Founder & CEO of The Convergence Foundation and Chairperson, Ashoka University, warned that there is a bubble in the market and, the market being cyclical, the big speculators and the retail investors will get crushed eventually. That would be bad for the economy for a period as investors will go into a shell and entrepreneurs will not be able to raise capital from the market for some time, he said. He pointed out that currently more than Rs 1 lakh crore is coming into the stockmarket each month and everywhere people are talking about making money in the markets. He said that while the SEBI has been a great regulator and it has widened the investor base, the new base of investors has not seen the downside, and many will lose their shirt.
Mr A Balasubramanian, Managing Director & CEO, Aditya Birla Sun Life AMC Ltd said that mutual funds are now about 23% of bank deposits in India from about 13% a decade ago and the share of B30 cities in mutual fund investment has reached 28% from minimal in the last 10 years. He pointed out that equity investments have come to dominate mutual funds since demonetization and lowering of interest rates in the past decade. He said that the money that was not coming to the market is now flowing in and companies that earlier relied on debt to build businesses are now using equity to do so. He said that promoters now favour equity to debt because of fear of losing their assets due to Insolvency and Bankruptcy Code.
On the financial markets’ role in driving economic growth, Mr Vetri Subramaniam said that what is good for the economy is not necessarily good for the markets, and as companies put their funds into real assets, the returns on financial assets will decelerate. Mr Dhawan said that private equity and longer-dated instruments such as pension and insurance will be vital. However, he stressed that these need to show greater returns and have more disclosures, such as mark to market information. He pointed out that the retirement saving pool in India is growing and has reached 18% of the household savings, while insurance is stable at about 18%.
On the growth potential of Indian economy, Mr Dhawan said that India is well positioned to grow having a low debt to GDP ratio. He argued that India can become a manufacturing powerhouse only through exports and each sector needs a convergence of policies. He highlighted the importance of reducing import duties to export more, permission for workers’ dormitories for exporters, and creation of labour courts in states. He said creation of jobs in India is not so much a matter of skilling as of policies, as in many labour intensive sectors, it takes only three months of training to put somebody on the assembly line.
Mr Sanjay Narayan, Chief General Manager, Zonal office – Delhi, Union Bank of India summed up the session.
The session was livestreamed on AIMA’s social media channels.
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