Investors are the new bankers, markets resemble ’90s boom that went bust, warns S Naren

S Naren, CIO, ICICI Prudential AMC

India’s roaring equity market has put investors, not banks, at the center of capital allocation — and that’s making S Naren uneasy. “Markets have been cheerful for years,” the chief investment officer of ICICI Prudential Asset Management said in an interview on The Wealth Podcast with N Mahalakshmi. “But what worries me is not the cheer, it’s that investors are now the principal capital allocators. I don’t know whether they recognize that.”

Naren drew parallels between today’s environment and two earlier cycles. In 2007–10, he said, banks were the main source of financing, lending heavily to projects that later turned into bad loans. In the 1990s, stock markets were the key financing channel — and when earnings failed to materialize, investors faced steep losses.

“Today, like in the ’90s, the principal investing entity for the entire economy has become the stock market,” he said. “Investors are financing projects through IPOs, qualified institutional placements, giving exits to private equity, promoter blocks, and multinationals selling in India.”

That shift, he warned, comes with risks — especially in an environment where investors are “obsessed” with equities despite repeated calls from fund houses for broader asset allocation. “We tell them to invest in equity, debt, gold, REITs, liquid funds. But people are very, very focused on equity,” Naren said.

High valuations are another concern. “When you buy a stock at 50 or 60 times earnings, or in some new-age companies without earnings, you’re taking a big risk,” he said. Some loss-making firms have delivered spectacular returns in recent years, but Naren said this is further perpetuating high risk-taking tendencies: “People feel even more comfortable… Let’s back some more companies without earnings. But what if the earnings don’t come?”

He noted that in the nineties, a flood of IPOs was followed by disappointing earnings, triggering substantial investor losses. “This is what worries us — whether capital allocation is going to overvalued stocks. A lot of loss-making companies can easily raise money today, and many of these IPOs or private equity exits are not cheap.”

So far, the strategy has worked for investors. “Every investor has made money,” he said. “In fact, many of the private equities say, ‘Why are you complaining? You have made money after buying from us.’ But the reality is, the time to judge may not be today.”

According to Naren, the warning signs are clear: mispricing, concentration in equities, and the risk of a replay of the ’90s, when overconfidence in the market left investors nursing decade-long losses.

Watch S Naren's exclusive interview here:

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