Market telling us there will be earnings rally in India for next many years: Mehul Bhatt

economictimes.indiatimes.com:

Mehul Bhatt, Founder & CIO, OysterRock Capital, says: “The worst mistakes are made in the best of times and that is something we worry about every morning when we wake up whether we are going down the quality curve, whether we are buying names which in a normal environment we would not but today are succumbing to buying those because of valuations.”Where is it that you find froth or overvalued pockets?In many of these engineering and capital goods stocks, valuations are ahead of what earnings would justify. So basically what the market is telling us is that you know it is expecting an earnings rally in India for the next many years.

If you buy at these valuations, obviously you have a lower expected return if all goes even as per expectations. The worst mistakes are made in the best of times and that is something we worry about every morning when we wake up whether we are going down the quality curve, whether we are buying names which in a normal environment we would not but today are succumbing to buying those because of valuations.

Those are things we need to be cautious about because from these prices unless your thesis plays out as you anticipate, it is going to be hard to make money. Today smallcaps are more expensive than midcaps and midcaps are more expensive than largecaps in general and that makes it harder.