Veteran investor Madhusudan Kela of MK Ventures believes that the next five years will be the “Amrit Kaal” for India’s equity markets. Kela spoke to CNBC-TV18 in an exclusive conversation after the Bharatiya Janta Party’s better-than-expected triumph in the state assembly elections. The BJP won in three out of four states that went to polls, dethroning the Congress in two of them.
In reaction to the BJP’s election triumph, Indian equities opened at newer records on Monday, with the Nifty 50 scaling past the 20,500 mark. The Midcap index has also opened at a record high.
Kela believes that being consistently bullish on India has paid off and that the government should focus on growth for the next five years.
Analysts across the board also believe that the state election results reinforce the consensus of the Narendra Modi-led government returning to power in 2024 and that it will also provide a boost to the market sentiment.
Although the biggest worry for the market, according to Kela, is valuations, he advises focusing on the bigger picture that interest rates and growth are much more stable now.
Within sectors, Kela believes that financials offer a good risk reward at this point and that he sees valuation comfort in that sector.
“I would say the financial space looks very compelling to me on a risk-reward basis because these stocks have not participated in the last 12-18 months meaningfully,” he said. “I would go so far as saying that we have always liked public sector banks over private sector banks, but now on the bet is the mix of the public sector, and also some private sector banks, which have consolidated beautifully.”
Return Of Institutional Flows
Another factor supporting the market has been the return of institutional flows over the last few sessions. Foreign investors were mostly buyers in the cash market through last week and Friday’s figure was even higher compared to domestic investors.
Kela says he won’t be surprised if the flows resume over the next few months with the certainty of these election results. “And when that money comes in, it will only go into large liquid companies and I think banks will be on the forefront of recipient of this kind of liquidity from the foreigners,” he said.
Foreign investors were net buyers in November after being sellers worth nearly $5 billion in Indian equities over September and October.
PSUs: The Theme of 2023
PSUs have been the theme of the year so far with the Nifty PSE Index rising nearly 62% so far in 2023. This is the best calendar year performance for the index since 2009, during which it gained nearly 80%. The overall PSU market capitalisation, which was nearly ₹14 lakh crore, has now crossed ₹45 lakh crore in the last three years.
However, despite stocks rising nearly 100% or 200% in 2023, Kela still believes that their valuations are still reasonable.
“With this certainty of government at the centre, given that it will last for many years even beyond 2024 clearly, I think PSU stocks will gain out of that stability at the centre. If I look at valuation, even though stock prices have gone up, the valuations are not expensive,” he said.
Underestimating Infrastructure Potential
Kela is invested in many infrastructure companies in the market and he believes that the market is still underestimating the potential of these companies.
“If you look at the order book of a lot of these infra companies, their performance in the last two quarters, and the quality of balance sheet, which is getting built up, and with this certainty again, this good work will continue for the next few years, if not more. At least I can see a visibility of that kind of timeframe, I think these stocks are still trading at very, very compelling valuations,” he said.
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