JP Morgan’s Sanjay Mookim Says Bottom-Up Ideas Continue To Find Favour

Some pockets of the Indian equity market are expected to grow better than benchmark indices and from a global point of view, India is fairly priced in the large-cap basket, according to Sanjay Mookim, India strategist and head of Equity Research at JPMorgan India.

Mookim was talking to Niraj Shah of NDTV Profit on the sidelines of JP Morgan India Investor Summit.

He noted that mid-cap and small-cap stocks are trading at an all-time high price to earnings ratio and that equity risk premium in the market is all-time low, indicating that equity as an asset class is reasonably overpriced.

Despite this, the Nifty 50 weighted average PE is same as S&P 500. Hence, he said that he cannot advise people to stay away from India as they have to invest if they have a mandate.

Without being too bearish, Mookim said that the prospects of India growth can be reasonably positive. "India is benefitting from an increase in per capita income," he said.

At the same time, Mookim has advised investors to moderate their future return expectations.

"If you buy at elevated multiples, future return expectations have to be moderated," he said, adding that while the earnings will grow better than others, investors should not expect a 15-20% CAGR over next 5-6 years.

Mookim explained that on a 12-month basis, stock prices are usually driven more by earnings beat and upgrades than by a mere earnings growth. Lately, however, that correlation has deteriorated.

He also advised investors to build a quality portfolio with stocks that will continue to trade even in a downcycle. "Things can go sour for a variety of reasons," he said.

Investor's money is coming to equities because fixed income is not investable due to tax, noted Mookim. Among the few sectors on which he is bullish include real estate and power.

According to him, banking is the only sector where valuations make sense. However, he advises investors to be patient as they might have to live through bit of weak growth in the near term.

Equity is an asset class that benefits from low inflation and high growth, he said and added that "we need to watch everywhere around the world if growth holds on or not."

"If the country's benchmark interest rate cut happens because growth is slowing down significantly then that is a very bad situation for equities," explained Mookim, adding that as of now the market believes that the rate cut will happen because of a lower inflation.

"India has had GDP upgrades in previous three quarters", he said, adding that a minor downgrade is expected this quarter.

The same trend is reflected in earnings as well. He noted that in the previous three quarters, earnings were beating estimates, but this quarter, there have been downgrades.