Equities more attractively priced than debt, says Sukumar Rajah of Franklin Templeton

By: | Published: November 20, 2017 4:46 PM

Even as the investors may infer that stocks are overvalued given the recent rally in the markets, Sukumar Rajah of Franklin Templeton India points out that equities are more attractive as compared to debt at the current valuations.

investment decision, advice from friend, advice from relative, advice from qualified financial advisor, financial goals, risk profile, Ulip, insurance, stock marketSukumar Rajah of Franklin Templeton says that equities are more attractively priced as compared to debt. (Image: Reuters)

Even as the investors may infer that stocks are overvalued given the recent rally in the markets, Sukumar Rajah of Franklin Templeton India points out that equities are attractive as compared to debt at the current valuations. In an interview to CNBC TV18, Sukumar Rajah, Director & CIO, Franklin Templeton Investments said, “I think equities are, globally and in India very attractively priced in relation to debt, and probably much better than real estate in any case.” The expert points out that as the cost of debt reduces, equities will become more attractive. “Implied cost of equity is India is about 12-13%. I think there is enough margin of safety in the current valuation, in relation to debt. So, if the cost of debt keeps going down, equities will become more attractive compared to debt, which means that there has to be a higher allocation towards equities.”

On similar lines, Ridham Desai of Morgan Stanley said at the recently held Morningstar conference, “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 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.” As the markets had corrected a little over 2% last week, a few market voices including Leo Puri of UTI Asset Management Company had pointed out that the markets might consolidate further, and suggested that investors look beyond equities.

“One should look beyond equities. There are very good opportunities in debt. Financialization must involve allocation to debt,” Leo Puri, Managing Director of UTI AMC said during an interview to BTVi last week. Leo Puri explained that the return expectations on equities have been aligned lower globally. “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,” he told in the same interview.

While there maybe a few experts sounding caution, big bull of Dalal Street Rakesh Jhunjhunwala remains unfazed. “I’m damn bullish, and you don’t have to choose between asset classes,” Rakesh Jhunjhunwala had said at a recent event organised by MCX. According to India’s Warren Buffett, investors can easily make 15% returns in India’s stock markets. “I would expect 18% returns from the stock market. I’m quite sure that 15% is something that most investors should get over a period of time,” Rakesh Jhunjhunwala pointed out.

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