‘Froth cleared, stock market returns hinge on earnings growth’

India remains one of the strongest long-term bets despite some recent cooling as the froth is gone and domestic flows are steady, according to the head of India’s third-largest asset manager.

- Satish John & Dipti Sharma

Historically, global investors loved India for structural growth and a deep pool of high-quality businesses. Now, there are steady domestic flows. This reduces volatility, improves risk-adjusted returns, and makes India less vulnerable to global sentiment, said Navneet Munot, managing director and chief executive officer at HDFC Asset Management Co. “Earlier, if global markets sneezed, India caught a fever; now it is different.”

There aren’t extreme pockets of froth on one side and a deep value on the other, he said in an interview. “Now, returns will largely depend on earnings growth...”

There was consolidation over the last year with earnings growth coming below expectations, but recent policy measures should revive consumption, which is a key growth pillar, said Munot, who manages over ₹7.5 trillion in assets at HDFC AMC. “The festival season has shown optimism, and with government capex and eventual return of private capex, we could see a broader-based recovery and improved earnings growth in the coming quarters.”

Edited excerpts:

It was the LML Vespa IPO back then. You had to wait months to get a scooter, and we thought the company would do well if there was such a demand for the product. I think it listed at ₹60-70 against the IPO at ₹10. And the interesting part is that the company didn’t survive for long.

Growing up in Beawar, Rajasthan, our window to the world was radio and newspapers. The English newspaper would arrive a couple of days late, and a Gujarati biweekly ‘Vyapar’ gave insights into different businesses and markets. We used to listen to the BBC to track global events. My father used to say, “Read more, meet more”. Also, develop an interest in just observing prices: har price kuch kehta hai. Why prices moved, not only of stocks but everything, and always dig into the story behind them.

We didn’t really understand investing at all at the time—it was more of learning than actually creating wealth.