Valuations Remain 'Expensive' Despite Drawdown: Insights from MC Global Wealth Summit

At the Moneycontrol Global Wealth Summit, a panel of leading money managers emphasized the importance of caution when investing in the broader market, noting that valuations may not have fully stabilized.

Prashant Jain, a seasoned investor and founder of 3P Investment Manager, acknowledged that the excessive exuberance in small and midcap stocks may have subsided. However, he remains wary of the valuations in this segment and anticipates a prolonged period of underperformance. Although the sharp downturn observed in recent months may be over, Jain believes the space is still not attractively priced.

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Rashi Talwar Bhatia, Partner & Portfolio Manager at Ashmore Investment Management India, echoed similar concerns. Despite a 30% decline in smallcap stocks and midcap stocks, she noted that valuations still appear stretched. "While we've corrected from being two standard deviations above the 10-year historical average, we are still one standard deviation higher," she explained.

Bhatia emphasized the need for valuation rationalization, advising investors to carefully assess the price they pay. While she remains optimistic about India's long-term growth trajectory and expects a "consistent upward trend," she cautioned that equity valuations should not become irrationally inflated.

Both Jain and Bhatia concurred that largecap stocks are beginning to offer more attractive valuations.

The India Outlook

Jain projected that IPO activity could decline by 60-80%, which might lead to a slowdown in selling by Foreign Institutional Investors (FIIs). He expects local investment flows to remain stable, with a significant portion directed towards largecaps. Jain also predicted that India's profit growth would range between 10-12%, as profit margins have limited scope for further expansion. He pointed out that the extraordinary compounding returns witnessed between 2019 and 2024 have now normalized.

Sunil Singhania of Abakkus Asset Manager stressed the importance of India's ability to maintain a 6.5–7% economic growth rate, as this would be necessary to sustain annual profit growth of 11–12%.

Trump’s Reciprocal Tariff Policy

Singhania also expressed concerns over the diminishing impact of reciprocal tariffs under US President Donald Trump, citing the unpredictability of tariff decisions. He warned that repeated policy shifts could erode their effectiveness, much like how constant warnings eventually lose their impact. "Global markets will adjust and move forward despite ongoing developments," he remarked, acknowledging that while short-term uncertainties may arise, the broader economic outlook remains uncertain.