“I am more of a half-glass-empty kind of guy. It (Nifty’s outperformance) makes me nervous. We live in a very globalised world. Everything is interconnected. I do not really quite fathom why all the other markets are down 15%-20% whereas at the same point we are flat. I think India has problems similar to the West in many ways or to the emerging markets,” Kamath told ETMarkets in an interview.
The billionaire entrepreneur, who is the Co-founder of True Beacon that runs AIF and PMS funds, cited rising trade deficit, inflation, interest rates and the slowing down of GDP as reasons that make him skeptical about the current valuations.
Amid strong flows from domestic and retail investors, Nifty is now flat on a year-to-date basis while the S&P500 is down 23% and Nasdaq over 30% during the period. In the emerging markets basket as well, India has proved to be an exception. Contrary to the theory that when the US market sneezes, the world catches a cold, the Indian market is now acting as if it is getting decoupled from the rest of the world.
“Our trade deficit is increasing. Our total fiscal balance is coming down. Interest rate cycles in India will also go up. If the Fed increases another 75 bps and they take interest rates all the way up to 4.5%, it would translate to 9% on mortgage lending. I do not see a situation where if home loan rates in America are at 9%, we will not be at 15-16% at the same time. It will likely damage demand. The difference between the number of people willing to buy a home at 15% interest rates versus at 11% would be significant,” Kamath said.
Foreign investors, he said, however, are largely very optimistic when it comes to India. “Even today if you ask a bunch of PEs and sovereign bodies from across the world, they are really happy with the large demographic opportunity that India has. Not many geographies across the globe have the consistency of the government at the Centre that we have had from 2014, in terms of policy making and outlook,” he said.
When asked whether Nifty would be able to hit a new all-time high anytime this year, he said
record highs are irrelevant as it doesn’t make a difference for all practical purposes. “But I would say that the likelihood of seeing lower levels is higher than seeing higher levels,” the money manager said.
Launched around 2 months ago, Kamath’s PMS fund has managed to outperform the market. He has now come up with a new quant-driven fund based on factor model.
“This is a model which is perfect for the lofty valuations of Nifty today. If you were to compare earnings to the multiples, we are probably at the top quartile of valuations historically. At this point of time, we feel the model that we have implemented makes the most sense,” Kamath said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
