While Sensex may have surged by more than 25% in the year so far, Leo Puri of UTI AMC says that the return on equities going forward maybe in the range of 10-12%, and investors must look beyond stocks. In an interview to BTVi, Leo Puri, Managing Director of UTI Asset Management Company said, “ One should look beyond equities. There are very good opportunities in debt. Financialization must involve allocation to debt.” Explaining the impact of inflation on return expectations, Leo Puri said, “In the past, in a high inflation regime you believed you could get 20% return on equities, 12% return on bonds. Today, you will get 12% return on equities and maybe 7% on bonds. Globally, return expectations have been aligned lower. In that context, it makes a lot of sense for the households to look at fixed income, and a rebalancing of their overall exposure.”
In fact, many fund managers have suggested that the benchmark indices will grow in the range of 10-12%. S Naren, Executive Director at ICICI Prudential AMC told CNBC TV18 last month, “We believe that markets will grow at high single digit growth in the next three years, so by 2020 Nifty should be at around 12,500 levels.” Navneet Munot of SBI Mutual Fund too concurred that by march 2020, Nifty would top 12,500. “12,500 would mean 12% per annum, I’ll go with that.”
Last month, Ridham Desai of Morgan Stanley compared the valuations of stocks with respect to bonds. “Bonds are trading at 16 times earnings. The bond cash flow, the coupon that you get, will terminate after 10 years. The dividends you get from equities go way beyond the 10 year time-frame. This implies that equities are actually much cheaper, and that’s because bond yields are very low compared to India’s own history,” he said at the Morningstar conference.