The preference for quality has been a feature of India’s $2.1 trillion stock market for more than a year as investors seek the safety of the strongest balance sheets. While the S&P BSE Sensex
has risen 13 per cent this year to a series of record highs, the rally has been led by a handful of heavyweights. The broader market has trailed, with gauges of small and medium-sized companies in the red.
Quality can be expensive. The Sensex is trading at 19.5 times estimated forward earnings, above its five-year mean of 17.1 times.
India’s economy probably grew 4.6 per cent last quarter, which would be the slowest since the first three months of 2013, according to the median estimate in a Bloomberg survey before the data is released Friday. While efforts have been made to alleviate the bad loan crisis, consumption remains sluggish.
Nigam expects a recovery next fiscal year, “but a slower one”. For now he’s content to spend more on good stocks.
“Great businesses are edging out everybody else,” he said. “They are getting much higher multiples.”