Srinivas Rao Ravuri, CIO-Equities, PGIM India Mutual Fund, said that restrictions on investments in Chinese companies have left fewer options with investors looking for exposure to emerging markets (EMs) and India is clearly a beneficiary of this.
Ravuri has over 24 years of experience in Indian financial markets. In the past, he has worked with HDFC Asset Management Company, Motilal Oswal Securities, Edelweiss Capital and Securities Capital Investment.
In an interview with Moneycontrol’s Kshitij Anand, Ravuri said that retail investors need to be extremely careful about investing directly into equities, and according to me, the frenzy in IPOs is clearly a sign of overheating in the market.
Edited excerpts:-
Q) Market hit a fresh record highs in H12021 and the momentum continued at the starting of H22021 as well. What is driving markets – is it FOMO, TINA or plain liquidity?
A) Yes, markets have been buoyant led by multiple reasons both fundamental and technical. In FY21, corporate Inc. has reported the highest profit growth in the last thirteen years and the current year (FY22) is likely to see about 30 percent growth in profits.
Liquidity is also playing a role as foreign institutional investors (FIIs) continue to invest more into India as part of global excess liquidity finding its way into India.
Restrictions on investments in Chinese companies have left fewer options with investors looking for exposure to emerging markets (EMs) and India is clearly a beneficiary of this.
Also, retail participation is very high as recency bias is playing a significant role.
Making money in stock markets seems to be the easiest thing to do at this point of time. But, we all know that making money can never be easy and many are sure to realise this when the tide changes.
Q) Retail investors gulped down Zomato IPO in the first 1-2 hours of opening — a record of some sorts despite knowing what they are getting into. What is driving the optimism there? We saw record anchor investors, as well as MFs, subscribing to the issue? Is it like a Gold mine which investors will miss in case they don’t get an allotment?
A) We don’t want to comment on the individual company. But, let me make few broader points on this.
A) Globally there are lot of disruptions and innovations in businesses led by technology,
B) There is plenty of cheap capital,
C) Companies that have gained scale have given phenomenal returns to investors as can be seen from returns of FAANG stocks, and
D) Sharp increase in retail investors, mostly young people who are in their 20’s.
Investors who have witnessed how these trends have played in other countries are taking a bet that something similar will happen in India also and investing accordingly.
We also agree with the broader hypothesis that some of these companies will emerge as winners and will create serious wealth.
However, retail investors need to be extremely careful about investing directly into equity markets. According to me, the frenzy in IPOs is clearly a sign of overheating in the market.
Q) Manmohan Singh’s July 24, 1991, budget speech is considered as the harbinger of economic reforms in India. What is your take on that? Do you think the best of the reform years are already behind us and what this means for investors?
A) 1991 remains a pivot in terms of the country moving away from the socialistic era. So, nothing can come close to that. However, reforms is continuing process to ensure healthy growth of the economy, steer the country towards its desired direction, and ensure a fair business environment.
Q) Small & Midcaps seems to be surging ahead of the benchmark indices and are trading slight premium to largecaps which has not been the case for long. Does that make you cautious on this space? What are your view and what should investors do?
A) Small & Midcaps are more volatile than largecap, so they are for investors who can tolerate higher volatility and also who have a longer time horizon – a minimum of five years.
While it is true that small & midcaps have done well in recent times, they are still underperforming largecap indexes on a 3 and 5-Year basis.
Also, stock selection is extremely important in determining risk. At aggregate levels, small caps in the NSE500 index have better balance sheets (lower leverage) than in the past.
During the period of economic recovery & growth phase, small caps tend to perform better than large caps.
Considering the opportunities in the smallcap space, we have launched PGIM India Small Cap Fund NFO to harness the potential of smallcap companies
Q) What is your investment mantra for wealth creation? When did you start investing, and a little bit about yourself?
A) Common sense and patience are key mantras for wealth creation. I have been a big believer in the equities all along, started investing in equities in my college days, and experienced volatile rides in the first two down cycles.
Asset allocation and investing for the long term have been key attributes of my personal investment journey.
Q) What is your call on IT space – your prefer pecking order between Infosys, TCS, Wipro, and MindTree?
A) We are positive in the IT sector as digitization and outsourcing gained strong traction in recent quarters. Indian IT companies have gained scale, global reach, and competence to capitalizing on these opportunities.
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