"One of the matrix one could look at is market cap to GDP (gross domestic product). The long-term market cap to GDP ratio is close to 80 per cent while today we are at a low of 63 per cent. In the past decade or two, we have bounced back from these levels," said Mr Haria.
Corporate earnings have gone down from eight per cent to four per cent and return on equity has gone down from 25 per cent to 15 per cent, he said. There is clearly a scope for mean reversion on many of these parameters, he added.
According to Mr Haria, markets have been weighed down by global sentiments, especially the fall in oil prices bear a significantly high correlation with returns from equity market in general. Higher oil prices mean significant outperformance of equity markets and lower oil prices means significant underperformance, he said.
Lower oil prices, over past one year, have helped India improve its fiscal deficit and balance of payments, but at the same time lower oil prices have forced sovereign wealth funds to sell their positions from emerging market and that has led to an outflow from India equity market, said Mr Haria.
Mr Haria believes that the outflows from Indian markets may stop, if Federal Reserve hikes rates as emerging markets have seen inflows after past two rate hikes between 1993 and 2003.
India may see some of the flows coming in the next three years as both on the macro as well as the micro front India is one of the most stable economies, he said.
Mr Haria is positive on power utility and oil & gas companies. He said lot of negativity caused by fall in oil prices is now factored in. Oil will see a bounce from here as prices below $30 per barrel are unsustainable, he said.
He is bullish on select metal companies. The balance sheets of ferrous companies are stressful but the government is trying its best to help these companies recover, he added. All metals have seen a significant jump in their prices in past two months, and if this bounce sustains, metal companies will benefit from it, Mr Haria added.
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