Is Nifty in expensive zone? Prashant Jain explains why valuations are reasonable

“I think returns should be positive over the course of next year. The valuations are reasonable. Some people felt that markets have run up much ahead of the economic growth or fundamentals, but I think that is not entirely true. Markets are now keeping pace with the fundamentals,” Jain told ET NOW.

Jain, who is the Executive Director & Chief Investment Officer at HDFC AMC, sees profit-to-GDP ratio improving to 4 per cent next year. China+1 strategy is helping India, he said, adding that the outlook on private capex has improved as leverage is low.

He said the low cost of capital will continue for a while. Commodity prices will not impact earnings growth, he said, adding that most companies will pass on inflation to the end consumer.

“In such markets, look for compounding growth rate,” Jain told ET Now.

The mutual fund honcho said profitability across the manufacturing sector in India has seen improvement, be it paper, textiles, metals or chemicals sector.

“We know how infra investments in India are accelerating the flow of PE capital into not just the listed markets, but in startups as well. Infra assets have positive implications for not just the economy, but also for the infra sector and corporate banks. They’re going to feel quite optimistic going into this year too,” Jain said adding that the corporate NPA cycle has almost ended.

He said the market is pricing in some normalisation of interest rates. If the interest rate surprises on the upside, there could be some downside to valuations, he said.

“Market valuations are fine, 10 per cent higher than long-term averages. So it’s reasonable, given the extremely low interest rates. The interesting point about India is that long-term returns in a growth environment in a growth economy like India are far more dependent on both than they are on some variations in interest,” Jain said.

“If interest rates go up really sharply, it could have a moderating impact on valuations. But if growth is persistent, if growth is good, I think one can still maintain a positive view of equities,” Jain said.