No froth in market; largecaps may offer short-term value: Manish Gunwani
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, Head-Equity,, says equity markets , with a 6% real return over the past decade, don't currently signal bubble concerns. While large caps may offer short-term value, focusing on themes and bottom-up investing presents sufficient risk-reward. Anticipated foreign capital inflow into India over three to five years, influenced by dollar trends, should sustain market attractiveness.There is a feeling that markets are frothy, but that is probably because of mid and smallcap performance over the last three years. Objectively, if you see long-term data, the best correlation of market levels is not to GDP growth but to inflation. The 10-year real return on Nifty 500 is about 6%, which is where it should be theoretically because empirically, every market tends to converge at about 5-7% real return in equities when you see very long-term data.Obviously, this does not work on a one- or two-year kind of time frame. I do not think this is a market to be excessively worried about. There is a bit of narrative about this being a bubble. I do not know, means the data does not seem to suggest that in 10 years, the equity markets have returned about 6% real return, it is not typically a level at which you should worry too much about market level. Now, you could say largecaps are cheaper and all that, yes, from a one-year perspective that may work. But it is a market where if we focus on just themes and bottom-up investing, there is enough risk-reward available.As I said, ultimately you are part of the world. Now, if you have a country where your biggest import, energy, is structurally looking weak in terms of prices because of EVs and renewables and if you have a country where the biggest export which is services seem to be very resilient. So, even when listed IT services companies have slowed down, if you see our net services export has held up remarkably well, if someone is looking at long-term asset allocation globally, it is difficult to believe that you can be negative on Indian rupee or Indian assets, that does not mean every three months we will see positive foreign flows.But if you take a three-five-year view, I would think that foreign capital should come meaningfully into India. Maybe fixed income and FDI are more attractive because we tend to be expensive on listed equities, but we will not see any big outflows in the sense that yes, we saw outflows but ultimately if the market is attractive, foreign inflows will be healthy and the near-term, not everything but a big factor is the dollar. If the dollar index went from 110 to 99, I do not think it is very surprising to see foreign flows turning positive.
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