HDFC Securities chief executive Dhiraj Relli, though is bullish on the market, doesn’t see any net returns this year as there are many missing cogs in the market wheel for a broader rally. In an interview with Benn Kochuveedan of TNIE he tells the worst is behind us and investors can still rake in real moolah if they entered on the dips as market will remain range-bound. Excerpts:
Is the market out of the woods or is there more room for correction?
Yes, corrections of the past 18 months are already behind us, and we believe the market has the potential to do well. My view is simple: the Iran war will end. And historically, crises are temporary, but compounding is permanent. If you look at past events—wars, terror attacks, geopolitical crises—they typically lead to 10-15% corrections, followed by strong rebounds of 35–40% within six months. And I see the market rebounding by 12–14% from here. But that also means no net returns in this year too.
What makes you so optimistic after massive sell-offs? What’s your Nifty target?
My optimism is based on a few key factors. Over the past 18 months, we’ve already seen both price correction and time correction. Secondly, we’re assuming the Iran war will come to an end. I don’t know whether it will take two, four, or six weeks, but it will end.
We’d earlier estimated 18% earnings growth across our coverage universe of 277 stocks. Because of the war, we cut that slightly and even after that, we still see 10-12% earnings growth. With this earnings visibility and the corrections already behind us, we believe markets have the potential to do well.
Also, once this war ends, investor sentiment will shift. What is currently the fear of missing out (Fomo) may turn into what I call ‘frustration of missing out.’
You can already see this in the latest data. Everyone expected SIP flows to decline, but instead we saw a record of over `32,000 crore of SIP inflows in March. That clearly shows the resilience of retail investors. Also, there is a strong trend of financialisation and equitisation of savings. Domestic investors remain positive. ETF flows are also strong.
Why are you excluding Covid from your correction phase comparison?
Because the Covid-19 was a very different kind of a crisis. It lasted 18-24 months. The events we’re comparing are shorter—typically three to six months crisis. For example, even a one-day event like 26/11 caused a small correction but was followed by a strong rebound. So based on historical patterns, we believe over the next six months, say post-Diwali, the markets should recoup. Even then, we aren’t talking about extraordinary returns—just a 12–14% move, which aligns with earnings expectations.
But doesn’t that still imply limited returns or no real returns at all?
Exactly. Markets may remain range-bound for a longer period. For example, they could move between 24,000 and 27,000 over several years. The Nifty peak was 26,358.25 on January 5, 2026. It could reclaim that but that does not mean it would go up from there. So, the returns depend heavily on the entry point. If you enter at lower levels, you make money; if you enter at the peak, you may see no returns for years.
There are many examples of this. Take Cisco, for instance, it took nearly 25 years to return to its previous high reached in 2001. Back home, Wipro had a long period of stagnation. The key factor here is valuation.
So was there a bubble earlier?
Yes, there was froth, too much of it. In September 2024, valuations were very high—27–28x earnings. We were trading at over 100% premium to emerging markets, compared to a long-term average of about 60%. And that was when foreign investors started selling. Our current premium to EMs is 31.2%.
Who created that froth? FPIs?
Partly. But the bigger issue was valuation and relative opportunity. FPIs had better options elsewhere—especially in markets like Japan, Korea, Taiwan, and the even US. These markets offered better growth, especially through the AI theme. Unfortunately we lack a strong AI exposure. That’s another reason why FPIs reduced their allocations.
What about currency impact, the rupee has been bleeding for the third year on the trot now?
That’s a major factor. If the rupee depreciates 8% and market returns only 5–6%, FPIs actually lose money. So currency depreciation, weak earnings, and high valuations all worked against us.
Will FPIs come back after such as record rip-off of over Rs 1.8 trillion? Why did they do that? Is something more fundamentally wrong?
Yes, but not immediately. They’ll return when three things happen: valuations turn more reasonable, earnings growth improves, and the rupee stabilises. Also, when the AI trade in global markets peaks and capital rotates, flows will return to EMs like ours. LTCG is a not a major turn-off as they say we’re only market that taxes long-term investors.
So near-term growth will depend on domestic investors?
Absolutely. Domestic liquidity is the backbone right now. Mutual funds, SIP inflows, and insurance flows are strong. Even with FPI outflows, domestic investors have absorbed the supply. Mutual funds are also holding cash, ready to deploy.
Do strong SIP inflows really indicate strong participation?
Yes, SIPs have grown at around 24% annually over the past several years. This reflects a structural shift. But I’ll also say something important—small SIPs alone won’t make investors wealthy.
Why do you say so?
Because the ticket size is too small. A Rs 5,000–10,000 monthly SIP may grow, but not enough to create significant wealth over time, especially considering inflation. People will eventually realize this and increase their contributions. That’s where the real growth will come from. We should move from today’s Rs 3,000 average to Rs 30,000 to drive long-term returns.
There has been massive 3.5 million plunge in the number of active investors? What do you make out of this?
That’s not significant. Many accounts were opened during IPO booms. When markets slow, activity drops. The real trend to focus on is increasing participation and sustained inflows.
Are there any risks to your optimistic outlook?
Yes, the monsoon risk is a big one. If rainfall is significantly below normal, it could impact inflation and growth. That’s something I’m personally cautious about.
But overall, you still remain positive?
Yes. Markets may remain range-bound in the near-term, but from the current levels, there is still upside potential. Key drivers will be domestic liquidity, earnings recovery, and normalization after current disruptions.