Even as the markets enter into new year 2018, top banker Uday Kotak has sounded a word of caution for investors in the stock market. In a letter to employees of Kotak Group yesterday, the top banker has raised concerns over investor exuberance in the capital markets. We take a look at three key concerns raised by Uday Kotak.
Investors ditching debt for equity
Uday Kotak observes that investors are perceiving debt to be riskier than stocks, and shifting their allocation to equities. “Keeping aside the valuations and earnings argument, the factor that worries me is debt instruments are being perceived as high risk (in view of hardening of interest rates and the resulting erosion in value of the instrument) and that investors are shifting from debt to equity which is being perceived safer in comparison,” the ace banker observed in a letter to employees of Kotak Group yesterday. In November this year, Leo Puri of UTI AMC advised investors to look beyond equities, and debt market provides a good opportunity. “ One should look beyond equities. There are very good opportunities in debt. Financialisation must involve allocation to debt,” the top fund manager told BTVi.
Organised savings chasing limited supply of stocks
Uday Kotak says that organised savings of the investors is chasing a very limited supply of stocks.There are various modes of organised savings in India, including Recurring Deposits, SIP’s and Small Savings Schemes by which investors in India look to create a corpus by saving consistently. The top banker observes that there’s a limited supply of stocks in the capital markets. RBI too pointed out recently that there’s a rising need to increase the number of quality listed securities in India. RBI said in a recent report, “ In the long run, there is a need to increase the supply of quality listed securities so as to be able to meet rising demand, particularly through the mutual funds route.” Further, the report says, “Over the past six years, growth in listed companies in terms of number has increased marginally by 15 per cent on both the exchanges,” the apex bank noted.
Stocks at all-time high
According to the top banker, the stock prices are trading at all-time high levels. “With stocks reaching new highs every day, the current bull run of the capital market looks extremely tempting. I would advise investors to exercise caution as stock prices are moving up.” Uday Kotak said.