Valuations Steep as Retail Investors Buy Across Price Levels

Retail investors buying regardless of price levels and mutual funds buying due to continued investor inflows are keeping India's market valuations high, Sanjeev Prasad of Kotak Institutional Equities said, adding India's slow growth and high valuations are key concerns for foreign portfolio investors.

- Ram Sahgal

"How quickly a valuation reset happens depends on how domestic investors, both institutional and non-institutional, react in terms of aligning quickly to the right levels of value for respective sectors and stocks. This will result in a faster correction. If they don't align, then we have a situation where FPIs will keep selling and domestic investors will keep buying," said Prasad, managing director and co-head of Kotak Institutional Equities.

"This price-agnostic buying by retail is a valid strategy for 10 to 15 to 20 years. But I don't know how many people follow that strategy," Prasad said on the sidelines of the annual Kotak Institutional Equities Chasing Growth Conference. Price-agnostic buying refers to buying across price levels without ascertaining the fundamental value proposition of a stock.

Prasad's comments come against the backdrop of FPI outflows of ₹2.68 trillion from India's cash market over the past four and a half months. The outflows have been induced by slowing GDP growth and corporate earnings in India and rising bond yields in the US following various targets related decisions by the administration.