Sailesh Raj Bhan, president and chief investment officer for equity investments at Nippon India Mutual Fund, believes the worst of India's valuation excess has already been corrected. Speaking at the News18 Rising Bharat Summit, Bhan said the market's recent underperformance reflects the unwinding of an earlier phase in which investors paid unrealistically high prices for growth.
“There is never free money in the market,” he said. “Most of these stocks, when you go back two years back, three years back, were trading at crazy valuations.”
Bhan said several businesses that had not even completed five or 10 years of operations were trading at 50-70 times earnings during the momentum-driven phase. At the same time, India's overall earnings growth was relatively subdued.
“So I think our starting point of valuation was extremely high when a lot of money chased those sets of businesses,” he said.
That, in his view, explains why many investors earned average or negative returns despite India's long-term growth story remaining intact.