Saurabh Mukherjea’s Dharamsankat when FII clients ask when to put money in India

Caption - Saurabh Mukherjea and Nandita Rajhansa with their new book - Behold the Leviathan

Fielding the big question from foreign clients on when is the right time to invest in India is a dharamsankat, said Saurabh Mukherjea, founder and CIO of Marcellus Investment Mamagers in a press briefing talking about big shifts in the Indian economy chronicled in his latest book Behold the Leviathan. “We have foreign portfolio investors visit us regularly, if not every day at least one or two clients every week, and they say we are very keen to invest in India but you tell us when is the right time to buy. This puts us in a classic Indian dharamsankat,” Mukherjea said.

Asked jokingly if Mukherjea was standing in the way of the market and foreign investors by not asking them to dive in right away, Mukherjea said that the current earnings multiple continues to stay a tad elevated at 23x even though the market has corrected because earnings growth has also slowed. But between the historical average of 17x earnings and the current multiples, foreign investors will find their way into the market.

Speaking at an event, Mukherjea said, “Apart from an earnings slowdown, there’s no change, as private sector capex has started to come through and bank balance sheets are solid.”

Mukherjea said that the earnings slowdown could continue for the next few quarters, indicating this is a cyclical downturn. He added that India has seen strong earnings growth for the last three years and hence some bit of slowdown is expected.

Mukherjea said that post COVID 19, this is the sharpest slowdown in corporate earnings in the decade.

In Q3FY23, the MSCI India EPS grew 8 percent YoY, 14 percent in Q4FY23, 24 percent in Q1FY24, and 31 percent in Q2FY24. After which, the YoY growth in EPS started falling and has reached a level of -5 percent in Q2FY25, which is the sharpest slowdown in a decade.

Pramod Gubbi, head of sales in Marcellus, said that the foreign flows leaving India is “hot money”—quick-moving funds from sources like hedge funds, investment banks, and ETFs that can shift rapidly from one market to another. “Based on our conversations with foreign clients, we feel their interest in the Indian markets has only grown over time, but their concern is valuations. If the markets correct another 10%, a lot of them will come right in,” he added. “But the question with the domestic flows continuing to be so strong, we need to wait and watch if the markets could see this level of correction.”

Asked if the current conversation around rates being higher for longer is a deterrent to foreign flows into emerging markets, Gubbi said, that is not particularly a problem. “Funds are not happy with emerging market equities because other markets like China and Russia have disappointed. So, these funds will look at investing in India-dedicated funds when the valuations start to become attractive,” Gubbi said.

Mukherjea said he was advising his clients to shift to US midcap stocks, which, as a segment, looks a lot more attractive. He said that with Trump’s victory, focus will shift away from the Magnificent Seven stocks or the US big tech to US midcap stocks, which are quoting cheaper. The Magnificent Seven stocks stand for Alphabet, Apple, Amazon, Nvidia, Meta, Microsoft, and Tesla. Trump’s victory has raised hopes of re-shoring in America, which will help companies in the old economy sectors, he said.

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