India's PE multiple can quickly rise to 19 from 16.5 now: Do not wait to buy stocks

NEW DELHI: If you wait for clarity to emerge to invest in Indian stocks, you will end up missing the bus, says Harsha Upadhyaya, Head of Equity, Kotak Mutual Fund, said.

Interacting with a large audience at the weekly webinar on ETMarkets.com on Thursday, he said making money in stocks is not that tough if you are disciplined in your approach, and have an investment horizon of 3-5 years.

“Yes, there is a lot of uncertainty over rate hike by the US Federal Reserve, possible disappointment over actual monsoon outcome and slowing global growth. But that should not deter investors from putting money in Indian stocks, which are trading at fairly attractive valuations compared with their long-term averages,” Upadhyaya said.

“Right now, the Indian market is trading at a PE multiple of 16.5 times, which is slightly above its 20-year average of around 15.3 times,” Upadhyaya said.

Why should investors not wait for clarity before putting in their hard-earned money? “The answer is fairly simple. Clarity will always come at a higher price,” says Upadhyaya.

Today, the index is available at 16.5 times, but once we get clarity on monsoon, US Fed and other events, the multiple will quickly shoot up to 18 times or may be 19 times in no time, he said.

One simple rule is, if somebody buys an index or a stock at a higher price, there is lesser probability that it will generate wealth for investors.

Hence, investors should look at buying on every dip as current valuations look ripe if investors have a time horizon of 3-5 years, Upadhyaya said.

“If I were to make a prediction, the next 3-5 years will be better than last 3-5 years in the history of the Indian market,” he said.

Upadhyaya said on an average top mutual funds have given a 20-25 per cent return (CAGR), which is very impressive.

However, he didn't recommend investors to put all their money in equities right now. Instead, they should follow a staggered approach, he said.
To break it down, investors should look at putting some money in the market now, and the rest in intervals as and when more clarity emerges or as they get more confidence to buy in this market.

Earnings will be the next big trigger for the domestic market, which is expected to show a rebound as the economy recovers. Increased government spending, impact of seventh Pay Commission, interest rate cut and recovery in exports are some of the factors to name a few.

Improving operating leverage, falling interest cost and an improvement in working capital can accelerate earnings, but it could be a bit back-ended, said Upadhayay.

Upadhayay listed the following triggers which, he said, can boost domestic equities going forward.

FII flows: India stands out among global economies with faster EPS growth and improving macro-economic variables. However, it is over-owned by FIIs and any near-term riskoff environment is going to impact FII flows into India.

DII flows: DIIs have pumped in over Rs 5,000 crore into the domestic equity market so far in 2016. But these flows are expected to pick up as and when financial savings of households improve.

Fall in interest rates: A fall in interest rates to help revive demand and reduce stress for companies with significant debt can help revive earnings.

Policy reform: GST is a key reform for government to focus on. If this gets through, it can provide a significant fillip to the markets.