Small and midcaps rebound not driven by fundamentals, but surplus cash: S Naren

Time of India

19-05-2025

Returns have been fantastic in the last two decades, but it is the risk that we have to focus on because people have not seen the risks, whereas if you take many of the other emerging markets, people have seen the risks much more than the returns actually.
​You have to see FMCG sector doing well. You have to see two-wheeler sector doing much better. You have to see the entry-level car markets doing much better. So, we would love to see many parts of the economy do much better than asset prices just going up because of extremely good liquidity improvement thanks to the Reserve Bank of India.
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"They want to come costly, but we tell them come cheap, at least you can raise money comfortably. So, if they want to raise money at reasonable valuation, there is a lot of money available in India at this point of time," says S Naren , ED & CIO, ICICI Prudential AMC.Yes, absolutely. When we are investing public money, to find pockets of value has become very-very difficult at this point of time. At least earlier you had, banks were very attractively valued. Many of the largecaps look very-very cheap relative to midcaps Now, today across the board it is very tough to find which are the big pockets of value. I mean, as I was telling people Indian market is one of the best macro markets in the world, but due to that it is so difficult to find pockets of cheap value for equity market investor like icici Prudential Mutual Fund, that is the challenge actually.Because if something is cheap, every investor buys that part of the market and takes it to fair value and that is the challenge that we are facing when we are investing at this point of time. I do not think there is any other market in the world where fiscal is under control, current account deficit is under control, inflation is under control, growth is good, so banking system is in good shape today.Today, what is the big change between the time we spoke last and now is that liquidity has been improved in the economy, thanks to the fantastic effort of the Reserve Bank of India , that today there is phenomenal amount of liquidity in the economy and therefore, we have a situation, we have a very-very comfortable macros. It is tough to find value.It is tough actually. So, what we tell people is do asset allocation, which means do not put all your money in equity alone, invest in hybrid. Then, we tell people invest in the more safer parts of equity and in a way, we tell all the companies which are floating IPOs in the market come at reasonable prices, is the best time to come.They want to come costly, but we tell them come cheap, at least you can raise money comfortably. So, if they want to raise money at reasonable valuation, there is a lot of money available in India at this point of time.So, this is what we tell people and so we have a very comfortable environment, but you have to use it to raise money at reasonable valuations. Then, a lot of money can be raised by everybody. It can be raised by corporates. It can be raised by government in disinvestment. But finally, at the end of the day the valuations have to be reasonable. It cannot be absurd. And then, the challenge will come.Now, there is lot of money in the market. There is no shortage of money in the market at all. The amount of money that mutual funds are getting across the entire spectrum is very-very large.So, finally, that money has to get invested. If you look at the amount of cash that the mutual fund industry has in April end, it has gone up by more than 20,000 crores from where it was in March end because in April they did not invest enough. So, the cash has gone up.So, we have a situation where there is huge amount of money. So, I do not think market movement in the near term is about valuations or something. It is about liquidity and there is huge liquidity at this point of the market. As I mentioned, the Reserve Bank has also done its bit all the way in the last three to six months to improve liquidity in the economy.And what we want is that that liquidity that the Reserve Bank has pumped has to go into the real economy, not only into asset prices. If all the money that is being pumped by the Reserve Bank goes only into asset prices, it is not good for the economy because even today, if you look at sectors like FMCG, they are hardly growing. It is only asset prices which are booming substantially.You have to see FMCG sector doing well. You have to see two-wheeler sector doing much better. You have to see the entry-level car markets doing much better. So, we would love to see many parts of the economy do much better than asset prices just going up because of extremely good liquidity improvement thanks to the Reserve Bank of India.Yes, the risk in this market continues to be in the derivative segment, particularly the weekly option segment. I would say that is one of the markets.If you see even today, I think on the weekly settlements, the market turns out to be very volatile and that is one area where I would always tell retail investors do less.And second is I would say when they are investing in IPOs of loss-making companies, I think they have to be much-much more careful, so I would say that is a second area. And now I do not hear so much of conversations on SME IPO , that was a third area of risk, but I am not hearing so much in the recent past. I do not know what has happened because we do not participate in that segment, but I would say that is an area which seems to have become smaller. Has that boom come down?I do not know, but maybe it has come down, so I would say that was a third area. And as such we are worried that too much of money comes into equity from people who think that equity does not deliver negative returns and again the quick rebound has given again the feeling that equity does not give negative returns, that is something which worries us, particularly people who have seen longer periods of time and there are too many investors in the market who have been there after 2013 who have not seen this and that is something which worries us all the time.And because finally, mutual funds are custodians of public money and therefore when we try to tell people that there are risks, it is actually because as custodians of public money we have to consciously talk about the risks rather than talk about the returns. Returns have been fantastic in the last two decades, but it is the risk that we have to focus on because people have not seen the risks, whereas if you take many of the other emerging markets, people have seen the risks much more than the returns actually.