Gush of cash into stocks is ‘real problem’ for India’s top fund

Mumbai: Investors who poured record amounts into Indian stocks, sending valuations to the highest in Asia, need to be cautious, according to the nation’s largest money manager.

“The real problem at this point of time are high valuations and the local exuberance,” said Sankaren Naren, chief investment officer at ICICI Prudential Asset Management Co. “We have had a long period from 2011 without any big drawdown in stocks. It’s tough to convince mutual fund investors that stocks may fall.”

India’s equities have set multiple records this year as mutual funds plowed a record $14.7 billion into stocks, more than double the inflow from overseas investors. The gush of local money amid falling returns from property and gold has helped the $2.2 trillion market brush off concerns about how last year’s currency ban and a new tax regime were hurting earnings.

The S&P BSE Sensex has risen 33% in dollar terms this year, and is vying with South Korea’s benchmark for the top spot among Asia’s major markets. With a one-year forward price to earnings ratio of 22, the market is also the most expensive in the region. The advance has subdued price swings, leaving the measure of expected volatility below its five-year mean for most of this year, data compiled by Bloomberg show.

“We would like to see bouts of volatility,” Naren said. “Periodic volatility ensures that investors don’t go out of their risk bucket.” Bloomberg