People shouldn’t waste too much time on the outcome of elections as earnings and flows are the biggest drivers of the market, Ridham Desai, Managing Director of Morgan Stanley said Thursday.
Elections should be viewed from the entertainment perspective only as earnings and flows are the ones which will drive the market for a long period of time, said Ridham Desai in an interaction with ET Now.
“Our view is that earnings are turning. India is coming from a long drawn down cycle in earnings. Corporate margins will be entering into 5 years upcycle. So we are going to get strong corporate earnings,” Desai said.
India has found love for equities and has come out of a period when people didn’t like equity as an asset class. It is a structural story and has nothing to do with demonetisation. There is a shift in people’s attitude which will last for a very long period of 15-20 years, Desai added.
The market is at 3.2 times book which is right at the historical range of 2-4. There is nothing in the valuation to celebrate or worry about. Talking about P/E ratio, Desai said as the market is trading at 20 times earnings, people call it expensive but actually, earnings are very depressed.
“We are coming out of 8 years down cycle in earnings. If you normalize the cycle, the market on the PE multiples is not that rich. Either you normalize earnings and then measure the PE ratio or default to price to book which looks through earnings cycle. I don’t think we are dealing with difficult valuations,” Desai further added.
In a separate interaction with ET Now, Timothy Moe, chief equity strategist with Goldman Sachs said that the earnings will pick up this year and next year at 16% and 14% respectively. In the recent quarterly results as the third quarter of FY19 was the best in the last sixteen months, he hopes that the earnings will improve going forward and are already beginning to stabilise.