Critics will agree that Indian stock market is not very expensive: Nilesh Shah

While India’s market capitalization to GDP ratio is at an all-time high level, valuations are not at an all-time high, Dalal Street’s veteran stock picker Nilesh Shah said at AIF & PMS Conclave 2.0 on Wednesday.

“Valuations are not at all-time high. They are still reasonably valued or one can say they are little expensively valued but critics will agree that it is not very expensive and optimists will agree that it is not very cheap. We are in the middle,” Shah said at the virtual conclave.

While pointing out that India’s market cap to GDP ratio is at an all-time high of 132%, well above our historical averages, he said the profit to GDP ratio isn’t at peak.

“Clearly, one can see that markets are at an all-time high. What is known to the market and may be unconscious to investors is that our profit to GDP ratio is also near all-time high. In the 2007-08 bubble time, profit to GDP ratio had gone to as high as 7%. Barring that exception, current numbers of about 5% of GDP is one of the highest,” said Shah, Managing Director of Kotak Mutual Fund.

So what is sustaining these valuations? He said fundamentals, sentiments and liquidity are three key ingredients.

The downside in the market, he said, is limited unless something goes wrong fundamentally. The market has not discounted events like the fall of a government, flaring up of geopolitical risks and increasing of interest rates by the US Fed.

“Barring these unforeseen and unexpected events, we believe that downside of the market is limited,” he said, while adding that there are pockets of the market where there is exuberance. “SME is one such area. The SME IPO index is above Sensex. There are questions around accounting policies, limited floating stock, etc.” he said

The post-election rally has taken the market to new all-time high levels with Nifty rallying 4.4% this month alone.