A reversal in the interest rate cycle in the U.S. will be beneficial for Indian equities and bring in fresh flows to a market that is currently fairly valued, according to Vikas Khemani.
"Interest rates have peaked out in the U.S. and see no further scope of going up... The $45 billion outflows we have seen in the past two years will reverse when rates come down. That period is anywhere between the next 12 to 24 months," Khemani, founder of Carnelian Asset Advisors, told NDTV Profit.
Indian markets are at fair value and not expensive as has been suggested, he said. "If markets were to trade cheaper, I would be worrisome about the hypothesis." India's growth story is driving the current level of optimism in equities, according to Khemani.
"India's return on equity is best compared to others. Earnings growth is 15–18% sustainable for at least the next 3–5 years. The risk-free rate is the lowest ever, and risk premiums are coming down," he said.
Don't Wait For Correction
Retail investors should participate in the markets and not wait for corrections. India is still significantly underinvested as a society in comparison with the overall household savings, he said.
"Deploy and invest, since a 5–10% correction can come into the market at any point in time."
Market participants should remain invested in high quality businesses, Khemani said. He expects the broader markets to perform well in the long run.
Key Bets
Khemani is "super bullish" on manufacturing as a theme, which he predicts will do "very well" in the coming years, on the back of import substitution and export-oriented opportunities.
His top bets also include mid-cap IT companies over large-cap ones. BFSI will continue to do well in the next 5-10 years, according to him.
"We have a massive opportunity in the PSU banks. Three big transformations have happened in them—asset quality improvement, governance standards and technology adoption," he said.
Khemani is not very optimistic on consumer companies as a theme, while defence is a 15-20 years space which needs to be focused on at the company level, he said.
Watch the full conversation here:
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