Equities are richly valued; but no bubble in stock market, says Dharmesh Mehta of Axis Capital

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Published: November 9, 2017 12:57:19 PM

Equity benchmark indices Sensex and Nifty continue to trade near all-time high levels, and valuations appear to be stretched, however, Dharmesh Mehta of Axis Capital says that there is no bubble in the market.

Axis Capital’s Dharmesh Mehta says that there is no bubble in the stock market. (Image: Reuters)

Equity benchmark indices Sensex and Nifty continue to trade near all-time high levels, and valuations appear to be stretched, however, Dharmesh Mehta of Axis Capital says that there is no bubble in the market. In an interview to ET Now, Dharmesh Mehta, Managing Director and Chief Executive Officer of Axis Capital Ltd said, “ I don’t see any froth in the system. The valuations are expensive, but they are not crazy. Clearly, we are nowhere close to a bubble market.” In the same interview, Dharmesh Mehta explained that India will continue to command rich valuations. “We are a richly valued market, and that has to be the case, because India’s story is so great. Why should you get things cheaper now? Especially with all this demonetisation and GST coming in, I think the smart investors understand that these are long-term benefits for the country, despite some short term-pain. The opportunity is to buy into the short term pain, and hope that in long term, things will fall into place.”

Yesterday,  Teresa Barger, the co-founder and CEO of Cartica Management which manages more than $3.2 billion concurred that India is going through a quality rally. “ You had EPS growth, at least in the companies we like. This is a quality kind of rally. So, as longer-term investors we are not concerned about the hiccups,” Teresa Barger told CNBC TV18.

Last week, Nilesh Shah of Kotak AMC had pointed out that while the indices maybe trading at all-time high levels, the valuations haven’t peaked. “Indices are at all-time high, valuations are not at all-time high. We can’t compare the bull market valuation of 1991, 2000 and 2008. In 2008, profit as a percentage of GDP was 7.1%, in 2017, it is 3%. When I compare valuations, in 2008, it was peak profitability cycle valuation. Today, we have a depressed profitability valuation. There’s no guarantee that 3% GDP will move towards 7% valuation, but certainly it will move towards 5% level,” Nilesh Shah, Managing Director of Kotak AMC said in an interview to CNBC TV18.

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