The valuations in the stock markets are still too high and fundamentals need to catch up with them, according to a top official of the National Stock Exchange (NSE).
“Fundamentals need to certainly catch up with the valuations. So my hope is that corporate earnings and GDP growth over the next few quarters will improve and catch up with the valuations,” Vikram Limaye, Managing Director and Chief Executive Officer of NSE, told IANS.
Although he did not say in so many words that the markets were over-priced, the implication of his words is that they are.
“There is liquidity in the market which has driven valuations and, at some point of time… there is a need to have fundamentals that justify valuations,” Limaye told IANS in an interview.
On the ongoing downtrend in the equity markets and its likely impact on the key investment instrument, he said the slide was not unique to India.
“There has been a global correction and this is not unique to India. Our Indian markets also went up straight without any corrections for the last two years,” he pointed out.
“So a correction of 5-10 per cent is not the end of the world. People have to think medium- to long-term, if they have to invest in equities. Equities as an asset class outperforms any other asset class, when you are looking at a 10- to 15-year horizon.”
The massive sell-off in the global markets which began in the first few days of February, along with volatility unleashed due to the stress being faced by the domestic banking sector, has pulled Indian equity indices down sharply.
Since January 31, 2018, the Bombay Stock Exchange (BSE) Sensex has shed around 1,918 points and the NSE Nifty50 has declined by 567 points.
According to Limaye, there is a case and a need to have more start-ups to raise funds from the domestic equity markets to unlock value for initial investors.
“Indian markets have evolved quite significantly over the last five years and domestic listing is the right thing to do for an Indian business,” he asserted.
“If it (a company) is selling to Indian customers, it is logical for that company to list here, to build its brand and get the right kind of valuations because the story is well understood here, since they are doing business here,” Limaye said.
The NSE chief added that domestic mutual funds have a large corpus that can be invested in technology firms and that, initially, he wants to get some four to five companies to list for a “demonstration effect”.
“There are almost 1,500 companies funded by VCs (venture capitalists) and PE (private equity) firms for the last five to seven years. Many of them will require an exit in the next 12-24 months; so my hope is that even if a small percentage of them decide to list in India — then it will not be a small number,” Limaye added.
NSE is aggressively focusing on bringing start-ups, including “new economy, Fintechs, MSMEs and SMEs”, to list on its platform.