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Is the stock market in a bubble right now - Valuation Guru Aswath Damodaran interview | Viral reacts - YouTube

Channel: Groww

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you alluded to how india will grow okay

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speaking of economic growth i will i

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must get this question in about india's

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market capital gdp uh that at the moment

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is over 104 105. historically uh the

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indian market cap is 80

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of for india's gdp now the only time it

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traded at 100

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of india's gdp was in fyo 8 so should

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the current valuation ring alarm bells

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i know warren buffett loves this market

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cap is a percentage gdp but there are

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things that warren buffett uses that

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should not be used this is a really bad

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metric and here's the reason

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india's historically been an economy

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driven by private businesses

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family-owned businesses that's the

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history of india

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as countries increasingly incorporate

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and go to a trading market that

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percentage is going to rise so even if

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nothing changes about india

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the market cap as a percentage gdp

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should keep going up whatever you think

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about markets there are other metrics

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you can point to and say hey indian

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markets are overvalued but that metric

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doesn't in the least bit convince me

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about anything about the indian market

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i think that

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our indian investors being optimistic

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about the future yes are they being over

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optimistic that's i think something we

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can back out from the market and ask is

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that a reasonable assumption to make

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about the future

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historically family-owned businesses

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driven

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market cap to gdp let me use perhaps a

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metric that will be more acceptable to

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you uh

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price to earnings valuations the nifty

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is trading at over 20 times fy 22

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earnings historically we have traded at

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probably 17 uh times at best

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now does that make

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for worries of overvaluation

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let me ask you a question when we talk

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about pe we act as if it's a fact

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but it's always an estimate right

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because what goes in the denominator

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is a judgment call if i take 20 20

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earnings i get a very different pe ratio

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than 2019. normally with markets you

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don't care that much but at this point

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in time you need to care why because

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2020 was just an unusual year

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so you know we can make an argument

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based on p e ratios but it's got to be

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based on something beyond last 12 months

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of earnings because we are in unusual

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times and i would say this about every

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market in the world the earnings in the

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last 12 months are not a great metric to

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scale up on because it reflects an

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economy that was shut down at least for

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a portion of those 12 months

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but i i concede on you on your overall

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point the multiple of earnings that

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indian stocks are trading at is higher

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than it's been historically i accept

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that as a fact let me ask you a

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follow-up question though

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what are interest rates in india like

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now relative to 10 years ago 20 years

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ago 30 years ago

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investing is about always about

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alternatives

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and if you tell me that stocks are

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overvalued you'd have a very simple

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question you take your money out of

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stocks where are you going to put it

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are you going to put in bonds see what

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you get in the at a local you know i

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mean indians are very fond of fixed

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deposits and the rates you can earn on

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fixed deposits go check out what you

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make on fixed deposits now as opposed to

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10 years ago 20 years ago are you going

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to put in real estate good luck with

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that

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indian real estate is just as pricey as

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stocks

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so this is an argument that's not

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specific to india i hear it all the time

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all over the world stocks look expensive

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but relative to what

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relative to history i can't go back and

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trade history i can't go back and buy

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stocks at 2010 earnings or prices so i

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agree with you they're expensive but

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unless you show me that there are

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alternatives that are attractive i'm

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stuck with what i have not what i wish i

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had

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okay now let me pick out some pockets

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and ask your opinion titan for instance

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is trading at 71 times fy 23 earnings

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not 22 estimates of course mind you we

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have accounted already for the lower

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base and the big earnings jump this year

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likewise jubilant food you know the

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domino's pizza guys is trading at 73

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times fi 23 earnings would these

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constitute uh you know worrisome

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valuations

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oh absolutely i mean in any market at

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any time you're going to get and this is

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a particularly high it's the way i

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describe it all over the world is

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investors are pricing and perfection

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they're assuming that everything is

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going to work out perfectly there is

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there's a plausible story i can tell a

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plausible story for why you might pay 38

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times 20 23 earnings or 70 times 20 23

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but the key word is plausible

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investing should be about probabilities

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not plausible stories

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and around the world invest investors

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seem to be betting on the plausible over

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the probable and that has historically

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not worked out well for them

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unusual high forward p

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what might puncture the rally will it be

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when the fed starts tapering or the

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tapering actually begins

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i'll tell you the best case scenario is

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that

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the the world realizes that

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that there is a disconnect between what

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bond markets are saying what stock

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markets are saying let me explain stock

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markets is suggesting you know

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a very strong return to growth and a

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very strong return of the consumer

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that's what stock markets are saying

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bond markets are giving the opposite

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message low growth low inflation

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there's a disconnect here

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one of these markets has to adjust and

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your best case scenario is that that

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adjustment happens gradually your worst

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case scenario is that one day everybody

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wakes up and say what the heck have we

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done

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i mean why are t-bond rates one and a

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half percent when inflation is three

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percent and growth is two percent that's

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when you get those massive corrections

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you know so i think that the range of

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possible outcomes range here from a

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catastrophic drop to

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a kind of stagnant market for three or

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four years but things are just back

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let's hope for the latter over the

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former because i think there is

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definitely a disconnected market

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or stock market

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disconnect

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stock markets

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well let me just come back to equity and

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some of the valuations you know these

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bubble like valuations do you think

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i mean how long do you think they can

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continue suppose we both want to chat

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during christmas time

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do you think the shape of the markets

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would be very different

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now i i try not to use the word bubble

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because once you use the word bubble you

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attach

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irration i mean you basically say people

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have gone crazy they're they're insane

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they're not rational which allows you to

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stand on your ivory tower and look down

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at people and say look at all those

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crazy people the minute you do that

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i think you're in trouble i think i

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constantly constantly work at trying to

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understand what's going on in markets i

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i the quest to ask myself what am i

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missing

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now what is when i see a disconnect it

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doesn't make sense to me but doesn't

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mean that people have gone crazy it

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might be that i'm missing something

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so that's why i'm not a market timer i

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mean i'm still in stocks in spite of i

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try to find the places and stocks where

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i think i can still get a reasonable

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return

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but so but i think that that's the

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problem if you go in with this

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perception that people have gone crazy

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that this is a bubble

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historically what that's meant is you

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get out of stocks

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and because you don't have anywhere else

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to go you sit on cash you know how many

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people have been doing that since 2012

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because they've been expecting the

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bubble to correct or next month next

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quarter next year

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people have gone bankrupt doing it you

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know and if you so i

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am going to i mean i take a very karmic

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view of markets what is it it is what it

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is now i can't change bond rates i can't

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wag my finger at people and say don't do

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that i can just make the best decisions

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i can given what i see in markets today

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so if you ask me what the most likely

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scenario is at christmas

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my my my guess is it's more of the same

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okay because if everybody thought the

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likely scenario is a correction by

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christmas the correction is going to

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happen today right you'd never get a

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consensus on when a correction will

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happen because the correction happened

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right away

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as an informed investor

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foreign

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also don't forget to like this video and

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subscribe to grow on that note here's me

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gunjin grover signing off bye bye take

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care keep calm and invest on

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investment in securities market are

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subject to market risks read all the

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