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“With broad market multiples down around 20% in less than half a year, we are now at historically reasonable valuations though pockets of froth remain,” says Harsh Madhusudan Gupta, Fund Manager - PIPE, Ionic Asset.In an interview with ETMarkets, Gupta said: “The corporate profit to GDP ratio, adjusted for its secular growth, also shows that we are not late cycle for this bull run. This remains a correction not a bear market, technical corrections notwithstanding,” Edited excerpts:Trade war tensions escalated very quickly, with the US and China coming face to face with their respective trade restrictions, which unsettled equity markets across the globe.
What are your views?While tariffs have been worse than Trump's first term, they have not been as bad as expected. Repeated reversals on Canada/Mexico policy and ambiguity on reciprocal tariffs exist yet trade policy with respect to China is more focused.With marginal fiscal stabilisation, US long yields fell since the inauguration in January.
Add in EU re-armament and Chinese Big Tech reviving, the dollar is likely beginning a multi-year cyclical fall which last happened in 2002; that is generally bullish for emerging market assets including Indian equities.Ironically, this is what Trump's team wanted: a second Plaza accord for dollar devaluation and US re-industrialisation, but it is still too premature to say anything definitively.Benchmark indices are trading near crucial support levels – how are you looking at markets now?With broad market multiples down around 20% in less than half a year, we are now at historically reasonable valuations though pockets of froth remain.
Over the mid-term, FII ownership of Indian listed markets have fallen from a fourth to sixth in about a decade as the dollar has been strengthening.Despite that we have had 9 consecutive years of positive calendar returns thanks to domestic buying. With FII selling as a headwind, that is remarkable.
Now if the global cycle turns and RBI continues easing, we could see both DIIs and FIIs as tailwinds.The corporate profit to GDP ratio, adjusted for its secular growth, also shows that we are not late cycle for this bull run. This remains a correction not a bear market, technical corrections notwithstanding.
Many stocks are trading at a good 20-50% discount to their respective record/52-week highs. How should one look at picking stocks now? The biggest question is: are they value picks or value traps? One should conceptually separate their investment and trading portfolios. For investing, Buffett has a useful test: if the markets were closed for five years, would we be comfortable owning a piece of this business?If yes, then it could be a sound investment.
In the short term, one can only bet on re-rating or de-rating the stock, which is fine as a tactical or momentum strategy but with deep primary research, one can create a focused portfolio of companies with great compounding businesses, good corporate governance and reasonable entry valuations.That is the way to distinguish value picks from value traps, or GARP (growth at a reasonable price) from BAAP (buy at any price).How are you navigating markets with the help of the PIPE strategy?In line with the philosophy above, I am constructing a concentrated, low-churn portfolio of great growing businesses across sectors/sizes.
We use a couple of simple frameworks internally for our research.The first is 20-20-20; around 20 reasonably priced great businesses, held ideally for 20 quarters or five years, and aiming at 20% earnings or book value compounding on a fully diluted basis.This sounds like Twenty20 but is more like Test Cricket.
Second is our GSV methodology - where we look at Great business models and corporate governance, an italicised S-curve of diluted profits growing faster than nominal GDP growth for the foreseeable future, and V for reasonable valuations adjusted for growth and its predictability/longevity.Are we now in a fair value zone after the recent fall seen in markets, or are there chances of further decline?The very short term is very difficult to predict; nonetheless, provided the US incipient slowdown does not become something worse - it should be risk-on for the rest of the world as American financial exceptionalism gradually and cyclically ends.RBI's OMOs, FX swaps, repo auctions and rate cut(s) are also helping.
Moreover, given NIFTY trailing multiple at 20, and with BANK NIFTY less than 13, seems like large caps are clearly in a fair zone.The broader market also seems more attractive in March 2025 compared to September 2024, when the Trump tariff trade led to massive FII selling.As that partially reverses, some of the recent India vs China EM narrative will get replaced by India, China and other EMs narrative.
Small & Midcaps are already in a bear market – how should one play this theme in 2025?Pardon the hackneyed phrase, but the Indian Small/Mid-Cap market is now much more a stock pickers' market and not a momentum-narrative market as it had become for a couple of years or so.Many names that people were buying at ~100 multiples are not getting bids at half the ratio, which was a classic case of trading masquerading as investing. With that excess significantly though not completely out, solid bottom-up research combined with a good macro-thematic sense will serve investors well.
FII exodus continues in February. They have pulled out more than Rs 1.1 lakh cr from Indian equity markets (net investment) in the first 2 months of 2025, NSDL data showed.
Where do you see the trend moving in the next few months?As mentioned, FII flows into EMs such as India are inversely correlated - sometimes with a lag - with the broader, real dollar index.The dollar last peaked in 2002 and then bottomed out in 2011 after a brief rise during the global financial crisis, with the recent early 2025 peak taking out the late 2022 highs.The USD upcycle got extended for various reasons: Shale, Covid, Ukraine, Trump, AI etc.
But with a 14 year upcycle and the last two ones (1978-85, 1995-02) lasting only half as long - the probability of a turnaround is now very high. The question of FIIs coming back is now even more one of when and not if. Which sectors should one consider deploying cash in 2025?Financials look attractive - large cap private lenders are very reasonably priced and the capital market plays have also significantly corrected.
Given that we are more bullish on both Indian growth and markets compared to consensus, we are also selectively adding to various discretionary consumer plays.Given a relatively bad 2024 for consumption after a bumper 2022/23, there are some contrarian ideas out there. The long-term story is intact, while the short term is over-indexed.
What is the best strategy to play the market, especially the first-time investor who might probably see their portfolio in the red for the first time since COVID? The best way remains the same as always - one's core India equity portfolio should ideally be a focused and low-churn one; with great primary and secondary research, it is very much possible to get great business models, good corporate governance and decent compounding at reasonable valuations. Own great businesses, not stocks – the rest, all said and done, is commentary.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own.
These do not represent the views of the Economic Times).
