'Madness Of The Markets' Prompts Aequitas To Suspend Inflows Into Funds
IPOs are being oversubscribed 150-250 times and small caps have risen five times, but profitability has not increased at that rate, CIO Siddhartha Bhaiya says.
Valuations and the "madness of the markets" are the reasons behind the temporary suspension of inflow in Aequitas Investment Consultancy Pvt.'s funds, according to Siddhartha Bhaiya.
The entire small-cap index is quoting a 30 P/E multiple, and there is serious trouble brewing in the SME space, said Bhaiya, chief investment officer and managing director at the firm with assets under management worth Rs 4,500 crore.
"In the last 10.5 years, we have delivered 34% CAGR returns... If we don't find an opportunity where we can make 30% CAGR returns for the clients, then there is no point taking money," Bhaiya said on NDTV Profit's Portfolio Manager show.
This decision has been made due to the minimum margin of safety requirements before investing in stocks, he said in a LinkedIn post.
Nifty Midcap 100 and Smallcap 100, have surged about 42% and 51%, respectively, so far this year year, outpacing 16% gains in the benchmark Nifty 50. The broader market rally shrugged off global rate hikes, geopolitical tensions and volatility.
"The current frenetic and euphoric rally in the small and mid-cap index over the last six months has reduced the number of stocks that fit within our valuation framework. As a result, we see a bubble building in the IPO and SME markets," he said in the post.
IPOs are being oversubscribed 150-250 times, and small caps have risen five times, but the profitability has not increased at that rate, Bhaiya said.
However, he remains bullish on the Indian growth story. "Clearly, there are signs of froth in the market, but the economy is very good and we are very bullish on India."
The Nifty will still see 10-15% gain next year as it has not rallied heavily, Bhaiya said.
But the "biggest concern" is what is happening around broader markets, according to him. "We are seeing 3-4 QIPs every day, block deals are happening left, right and center, and these are happening after stocks have run up 30 to 50 times... It is scary to me as far as what is happening to broader markets."
The infrastructure space is poised to do well, but the stocks are already discounting the growth for the next 10 years and there is no scope for any surprises, Bhaiya said.
Apart from infrastructure, capital goods, railways, and defence are going to do well over time, as money is going to flow from business-to-customer to business-to-business players, he said.
