Nov. 19, 2010 (The Hindu Business Line) --
Rajalakshmi Sivam
BL Research Bureau
“Invest in global companies listed outside India”, that's the message from Mr Parag Parikh, Chairman, Parag Parikh Financial Advisory Services and one of the first equity researchers in the Indian market.
Being a contrarian investor himself, Mr Parikh, who has authored the bestselling book Value Investing and Behavioural Finance, says the “Indian market today has too much hype. Everybody believes in the GDP growth story and in the ‘gospel truth' that GDP growth will automatically lead to stock prices increasing”.
That's why India-listed companies automatically enjoyed such high valuations while evergreen global names such as PepsiCo (NYSE:PEP) , Nestle SA or IBM (NYSE:IBM) were trading at much lower valuations than their Indian counterparts.
He suggested that investors should buy such quality stocks overseas, using the annual overseas remittances of $200,000 now available to individual investors.
Stocks in the shadow
Pointing out that the money flooding into the Indian markets was mainly from the nouveau rich seeking to chase the ‘India Growth' story, he said the funds were flooding mainly into the index stocks, while opportunities could lie in the 7,000 other listed stocks.
The Indian market's outperformance over the last several years has come in equal parts from profit growth and PE re-rating, he said.
It won't help to drive with an eye on the rear-view mirror, he said.
reasons for worry
The asset price inflation that is creating a bubble-like situation and the excesses in segments of the market are reasons for worry.
He was confident that investors would be better off looking at markets that the world is ignoring now.
“There are quality businesses available at throwaway prices,” he said, citing the example of PepsiCo.
Lure of dollar earnings
Globalised companies are a good investment because they are not vulnerable to any one country's economy, he explained.
Their dollar earnings ensure they are a good bet when the dollar is declining.
“Bet on FMCG companies where the business is non-cyclical,” he advised.
According to him, the factors favouring global stocks include global spread of business, strong distribution network, undying demand for consumer products and the cheap valuations of the stocks.
‘Overbought markets'
Asked whether current market conditions are sustainable, he said, “The market appears overbought… Nothing which is unreasonable can sustain for long.”
Retail investors have to change their approach, he said.
“Retail investors always make the same mistakes… they buy at highs when there is overconfidence and over-optimism in the market, when actually they need to be doing the opposite.”
