Indian Market Not Cheap But Still Offers Opportunities, Says Franklin Templeton's Ajay Argal

India's long-term story is very strong, with favourable demographics and growth potential, according to Ajay Argal of Franklin Templeton Asset Management (India) Pvt.

However, he said, the valuations are not particularly cheap in the short term even though it consistently trades at a premium to other emerging markets. India's sustained growth is a compelling reason for this premium, he said, emphasising that the return on equities tends to be significantly superior than that of peers.

"India is such a large market that you will always get opportunities to get good returns in a few stocks even though the markets may not be so attractive in the very near term," Argal said in an interview with BQ Prime's Niraj Shah.

This is one of the sectors where the penetration is among the lowest anywhere in the world, according to Argal.

Argal sees private sector banks continuing to gain market share both in assets and liabilities. "So that's a very structural theme which we have been playing for the last few years."

The portfolio manager said non-performing ratios are currently at their lowest. He attributed this stability to the absence of a credit binge in recent years, suggesting that credit quality is unlikely to deteriorate at least in the coming quarters.

He said valuations in this sector remain relatively lower than their five- or 10-year historical averages or medians. "We continue to hold a very large weightage in the banking sector in spite of... that in the shorter term, there has been a bit of underperformance."

The Union government implemented significant changes, particularly in sectors like defence, with a strong focus on increasing manufacturing activities within India, Argal said.

He asserted that public sector companies now receive more opportunities than they did in the past, resulting in improved business performance. This improved performance deserves a better valuation or a re-rating, which is currently being acknowledged and supported by the market, he said.

Argal said many of the top internet-listed stocks in India exhibited a stronger emphasis on profitability. This shift in focus instills confidence that certain valuations in this sector may be sustainable.

He underscored that there are still significant growth opportunities available within this market. "This is one of the pockets where we feel a bit more comfortable than we were a few months back."