Edelweiss chief Radhika Gupta bullish on Indian stocks unfazed by prices

The firm oversees 465 billion rupees ($6.3 billion) in assets
A record price-to-earnings valuation for Indian shares shouldn’t act as a deterrent for stock investors, according to Radhika Gupta, the head of Edelweiss Asset Management Ltd.

Gupta, the only female chief executive officer of a major asset manager in India, says it’s “risky to be underweight equities” at a time when local stocks remain “heavily” driven by liquidity. Her firm, which oversees 465 billion rupees ($6.3 billion) in assets, is putting its money to work: an Edelweiss balanced fund that invests in both stocks and bonds has boosted its equity allocation to about 75%, from just 30% in March.

Radhika Gupta, chief executive officer of Edelweiss Asset Management Ltd., poses for a photograph at the company's office in Mumbai, India

“Looking at a single metric of value or P/E is not a fair way to judge the market at a point when domestic economic activity is bottoming out, and you have such high liquidity,” she said. “We are buyers of businesses. We are looking at corporate earnings, the domestic economy, flows and risk appetite.”

India’s benchmark S&P BSE Sensex has rallied around 90% from its low during the March swoon in 2020, hitting fresh records on the way. The rally fueled by central bank liquidity and incessant foreign inflows has the gauge trading at 23 times its 12-month forward earnings. That’s versus a five-year average multiple of 19 times.

Gupta’s optimism is at odds with rising concern among many market watchers that stock prices in India have run ahead of themselves as the economy braces for its biggest annual contraction in records going back to 1952.

Last week, the Reserve Bank of India also warned about the rally, citing a widening “disconnect” between certain sections of the financial markets and the real economy. The RBI will also start draining cash from the banking system as it seeks to revert to normal liquidity operations from pandemic-imposed emergency measures.

Earnings, Data

Gupta, on the other hand, points to improving corporate earnings and the strength shown in recent months by high-frequency economic indicators such as exports, automobile sales and manufacturing output amid an uptick in consumption. Analysts surveyed by Bloomberg have revised up 12-month estimated earnings for Sensex members by about 20% since a trough in July.

“A lot of the uncertainty surrounding markets has ebbed,” she said. “The second quarter was good for company earnings led by margin expansion, the tail risk for banks has been contained and a couple of government reforms in the pipeline tell you that the downside risk isn’t very high.”

Foreigners continue to pile into Indian stocks, having bought a net $2.2 billion in two weeks in the new year, after pumping in $23.4 billion in 2020. That was the most since 2012.

“Vaccines and the low interest environment that we are in could be a very good thing for emerging markets” like India, said Gupta. “We are hoping to see a scenario of better-than-expected performance for the corporate sector. With lockdowns opening up, we expect revenues to come back.”

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel