Indian equity markets are currently seeing a cyclical downturn, according to Marcellus Investment Managers' Founder and Chief Executive Officer Saurabh Mukherjea. He expects the Nifty 50 to correct by another 10% for it to be sensibly valued.
Mukherjea is more concerned on the 'pockets of froth' built in the small and mid cap space, amid the quadrupling of retail investor count in India over the last four years.
At the current juncture, he advises Indian investors to diversify their portfolio to North American market. He said both India and North America are highest performing markets with a very less correlation to each other.
A combined portfolio gives diversification, he said and added that given where we are in the Indian market, it makes sense to diversify from a perspective of valuation, as well as currency depreciation. "In the next two years, you might have to toggle back," he said.
Nifty's current forward price to earning would be around 22. He recommends 18 times PE to be sensible place for considering long term investing in India. "From a valuation perspective, it makes a great deal of sense to go west, look for small, mid caps in the western world at good valuations and if rupee comes off you get a further fillip from that," he said.
The current fall is not structural but cyclical, according to him. "We saw three great years after Covid, when the economy did really well and we saw almost 20% earnings growth three years in a row," he said.
However, there's nothing fearful about it as free market economy goes through ups and downs. The valuation should align with the fact that we are entering a multi-quarter cyclical downturn, he said.
Leaving aside, the Covid trough, Nifty, has done around mid to high teens and is not massively overvalued. Another 10-15% on Nifty and we should be reasonably save valuation territory, Mukherjea said.
Amid small and mid-caps, he sees the ecosystem of contractors who supply to defence, railway, and road builders being wildly overvalued.
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