Dharmesh Mehta, MD & CEO, Axis Capital believes India remains a sweet spot for investors although the valuations are a bit expensive.
Most of the long-only foreign institutional investors that sold earlier are seen coming back into the market, he said.
Moreover, with the UP elections now out of the way, the government will now shift focus towards reforms, and investments to propel the economic growth, he added.
He is very upbeat on the new listings that, according to him, are 'reasonably priced'. The appetite for such listings is quite high, and in the past two years, these investments have given good returns, Mehta said.
The house is positive on names like Reliance Capital because 'financial services is a good theme to play on', especially with all the focus on digitisation, he said.
"The overall portfolio of Reliance Capital is to invest in growth stories. The management team too is young and confident. So it is likely to be a multi-bagger," he said.
Below is the verbatim transcript of Dharmesh Mehta's interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal on CNBC-TV18.
Sonia: I want your thoughts on what is happening with the initial public offering (IPO) market because Music Broadcast got listed today; D-Mart is expected to be a blowout. How is the new financial year looking as far as money raising is concerned. Do you see a lot more take place?
A: We are going to see a record year next year for the money raised for the feedback we got already and the kind of interest which is there for a lot of companies to go for the IPO market and past two years have been a fabulous year for all the IPO investors. So, there is a lot of money waiting on the sidelines to put in all these new companies which are coming in, subject to they are priced fairly and very reasonable valuations as seen in the past two years. I think there will be huge appetite for IPOs coming in the future.
Anuj: The secondary market has also been on fire. All time highs. Do you think that this is still a good time to invest because for last two years technically we haven't done much? Optically we are at all time highs but from March 2015 to now, not much of a move. How would you approach the market from here on?
A: Not to forget that the market has reached new high in the week when there is Rs 140,000 crore blocked in one IPO - that kind of liquidity is not in the system to buy the market, which shows the strength of the money which is coming into the market because in the past when this kind of money was blocked, market would have collapsed or there would have been some kind of financial issue in the market which is not there at all, in fact there is much more money which can come into the market. Beside that the market has not done that great overall, if you look at the two year kind of period but let\'s take a step back and understand where we are today because the political agenda of the government is now over with a huge win which has come to them in Uttar Pradesh (UP). I believe a lot of focus in the next two years will come on the development side and the growth path which they have been talking about. So in the next two years everybody will be watching what kind of reforms take place, GST has been talked about, which can be a big game changer for India. So I would be positive on hoping that government will start the reform process and the kind of investments which are needed on the ground to kick this economy in a big way. However, India is in a sweet spot globally, so we have the opportunity. The commodity prices are coming down which is good for interest rates in India to go down further. There is enough money in the system, cash is lying with the banks, they are getting poor return that is why we are seeing a lot of money coming in mutual funds and the equity market. So if you look at the overall scenario where we are placed compared to the global world. I think India is a in a sweet spot but yes, valuations have run up. So one has to be stock selective but the future looks bullish.
Sonia: I wanted to talk about specific stories that have made headlines over the last few days. One of them is Reliance Capital and the meeting that took place with analysts yesterday. You have been tracking this company over the last many years when its asset under management (AUMs) were less than half of what it is today. What kind of growth do you see now that the company has made its plans little more certain to investors and how convinced are you after the management's commentary.
A: I generally do not comment on individual stocks but as I was there and yes, this has been a dear stock to us because we have been recommending this stock when it was just a holding company and the businesses were not even built. So what I saw yesterday and heard yesterday from the entire management team, it gives a lot of confidence to investors especially on this stock and if you are bullish on India, this is the best way to play India. I think the financial services will be a big game changer in India going forward especially with the kind of the push and thrust on the digital platform which is coming through. The challenges in India were always distribution for all financial services products and it is not a cost effective way to distribute all over the country because you wouldn't have made any margins. However, with the kind of digital reform that is taking place, I think companies like this and the other ones will benefit the most because the distribution cost will be nothing and they will be able to reach out to almost every Indian in the country.
Therefore, if I look at the overall product portfolio which Reliance Capital has, all the businesses are great growth story businesses and they are at the cusp of a big boost coming to these sectors. So I would be bullish on that knowing that the businesses are all good businesses, globally these businesses get fabulous valuation and they do not even have the demographics which India has, there is a young India which is coming up. So they are going to be using these products more than anyone else and for them digital will be the way to use these products and you get the mutual fund business which is doing so well for all the asset management companies (AMCs) especially the top ones. So if I look at all those factors combined and the young team gives more confidence because a young team with fresh thoughts and ideas and execution will be the key. If they deliver on the execution of what they spoke yesterday, this can be a multibagger.
Anuj: Let's talk about the big market theme as well. You have a lot of foreign institutional investor (FII) clients. What has been the feedback because India was off the radar - that's the feedback we have normally got as well? In the last two-three days we have seen scrambling to buy Indian stocks at all time highs. Do you get a sense that we could be in for large amount of FII buying, FII capitulation as one expert put it?A: You cannot term FII money as clean money. You are going to have exchange-traded funds (ETFs), the hedge funds and long only. So quality of investors coming into India is more important rather than just the FII flow. I believe a lot of long only FIIs who sold out India quite early, we are seeing a lot of them coming back to the market and also you need a lot of supply coming in for the FIIs to invest in. Last year despite all the boom on the IPO market and overall, people thought of humongous supply come in, actually the money raised in this financial year is much lower than last financial year because we didn't have large qualified institutional placement (QIPs). We recently concluded Hindalco Industries QIP and you saw the kind of demand came in for USD 500 million deal. So as the deal gets larger you will see larger and stronger FII inflows coming into India and the quality of the money will be much better.