Mumbai: Fund manager and chief executive of Singapore-based Amansa Capital Pte Ltd Akash Prakash says he is cautious on global markets, but positive on India. In an interview, Prakash says he expects Indian markets to record a compounded annual growth rate of 15% in the next five years. Edited excerpts:
Is there more juice in the global rally?
I am a little cautious on the global markets, actually. I think maybe the S&P 500 may hit 950-960 or 975, and I would be very surprised if it gets beyond that. Let’s say maybe 1,000. But I am not of the camp that (says) you are going to see 1,100 or 1,250 on the S&P. I think the US markets will take a breather for some time here.
People are talking about those levels—1,100-1,200—fuelled by liquidity and momentum. You don’t agree?
I still feel that the US and OECD (Organization for Economic Cooperation and Development) economies have a serious economic problem and I think the investors are getting a little complacent in those markets. So I don’t think that it will get there. But again, it is very difficult to predict where the liquidity is going to take the markets. It can take the markets to levels that you cannot anticipate. So that is possible. But fundamentally, I don’t think that can happen. I think the markets will stabilize or remain range-bound at these levels.
Last time when there was a correction—it was an 8-10% dip—and that dip got bought. Do you expect the (next) correction to follow similar patterns?
Yes. Which is why I think you don’t have a huge downside.
I think the investors are caught in the sense that a large amount of the real money or the long-term money has been under-invested in equities. They need to rebalance allocations.
The other aspect is the amount of money lying in MFs (mutual funds), as a percentage of the market cap, is the highest ever.
So there seems to be a lot of money waiting on the sidelines, both in terms of asset allocation as well as in terms of sitting in cash or quasi-cash kind of instruments. So I do see that any significant drop will be bought into.
What about India? The Nifty went to 4,000 swiftly after the Budget and then bounced from there. Do you see a strong base there in case a correction materializes?
I think in the next three months India will catch a breath. I think we had a huge move and I think we are going to be in a trading zone for some time because of the quantum of the move.
We need to digest some of these gains. So for the next three months, we are in trading zone. But I think from a three-five-year perspective, India is one of the most exciting markets and I genuinely believe that.
The stars are aligning for India from a long-term perspective and I think a lot of investors are beginning to understand that and for next three months we are going to be stuck in a range.
By when do you think we will get into an earnings growth trajectory which is supportive of reasonably good expansion in valuation multiples and a bull market?
The second half of this year. Because the base effect is so negative for the last three quarters, in the second half of this year, you will come up against very easy comparisons.
So, on a year-on-year basis, you will start to see strong earnings growth, which will excite the markets.
Even if we do consolidate for six months, is it likely that in 2010, the Sensex can get back to a new high...around 21,000?
It is tough to say. In 2010, 21,000 may be difficult. I think we should assume that in the next five years if we do 15% compounded for the markets, which is what our long-term trajectory for India is, I think we can.
On the downside for the Sensex, do you think that sub-12,000 is possible? Or is it 8,000?
I think it’s difficult to be precise about numbers. But 8,000 is not what I think. I think the general awareness among the investors is that this is a different kettle of fish in terms of this government.
I think they are talking a lot of positive things and hopefully you will see some action... So I don’t think that the range that we saw in early March is relevant anymore, unless you expect a total meltdown in the US, which I don’t expect.