“There’s a lot of interest in India,” Desai said, noting the growing importance of understanding the country not just from a portfolio standpoint but also in a global macro context. “You’re not now just coming to India because you have a couple of investments. You’re also coming because India is moving the world. The world may not slip into recession this year because of India.”
India’s stature has completely changed over the last decade, with the country expected to account for nearly a quarter of global GDP growth this year and next.
But for someone so bullish on the India growth story, does valuation worry him at all?
“I think stocks are cheap. Stocks are inexpensive in India,” he said. “The 10-year bond yield is 6.2%, the equity yield is 5%. India is a growth market. The gap is minus 1%. This is cheap.”
Desai also argued that investors who lean too heavily on price-to-earnings ratios may be missing the point. “Price to earnings is just another way of expressing price. Value is something very different… it’s about a company’s ability to generate cash flows and what expected return I have from that.”
Despite macro concerns, selloffs, and external shocks over the past six months, Desai said the market has shown resilience, and is 4-5% from all-time highs. “My instinct is, technically, the market wants to go up.”
On the retail side, he sees no signs of flight. The average holding period for Indian retail investors is a remarkable 36 months, which is not seen anywhere else on the planet.
However, he believes India may not be the next China as the world no longer has the appetite to build large-scale manufacturing capacities like it did in China over the past two decades.
While India is a key part of the “China plus one” strategy for multinational companies, most investments are aimed at catering to India’s domestic market, not global export.
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Watch the accompanying video for the full interview.
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