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Around 66 per cent of the BSE 500 universe is in the red since October, with 71 stocks losing more than 25 per cent of their value.

The conflict between Russia and Ukraine and the subsequent market correction may appear to be a good opportunity for investors to nibble into these stocks. But market watchers are of the opinion that valuations are still expensive and there is no clear answer to whether the markets have turned attractive.

“Given India’s already stretched equity valuations and global headwinds, we believe the market may remain choppy and advise investors to wait for better entry opportunities and invest only upon large corrections,” said a recent note by Credit Suisse Wealth Management India.

Foreign portfolio investors (FPIs) remain uncomfortable with India’s valuation premium and have sold about $20 billion since October. Nevertheless, domestic institutional investors (DIIs) and retail investors have absorbed a significant portion of selling pressure, so far. The mammoth LIC initial public offering, expected over a few weeks, may also impact liquidity, leading to a further correction.

The benchmark indices have recouped losses over the last few sessions after a steep correction the week before and are down 3 per cent in the year to date.

The market may not be fully factoring in the longer-term impact of the rising interest rates and inflation. “The impact of the Russia-Ukraine war on global inflation, commodity prices, and supply chain can only be known over the next two quarters. And we are yet to figure out the impact of the rising interest rates and inflation in India,” said Deepak Jasani, head-retail, HDFC Securities.

FMCG companies in India, for instance, have already effected price hikes of 10-25 per cent across categories, such as soaps, shampoos, paints, biscuits and edible oil in FY22.

The ongoing crude and commodities shock in the wake of the Russia-Ukraine conflict is likely to have negative implications for India’s macro situation in terms of higher inflation and bond yields, higher current account deficit, weaker INR, and potentially weaker consumer demand, and thus a lower GDP growth rate.

Some market watchers believe that the recent correction in the market has made valuations more palatable. At 18.1x currently, the Nifty index valuation appears to be expensive relative to the 20-year average of 16.1x and reasonable versus the 10-year average of 18.5x, according to Emkay’s India strategy report. The Nifty composition has changed towards higher P/E (growth) stocks, which makes recent averages more relevant, it said.

“Several stocks have corrected 25-50 per cent from their peak over the past 4-5 months. The conflict between Russia and Ukraine poses a near-term headwind but there is scope for bottom-up investing in the mid- and small-cap segments,” said Sachin Shah, Fund Manager, Emkay Investment Managers.

Kotak Institutional Equities says it finds reasonable reward/risk balance in sectors, such as banks and diversified financials, capital goods, real estate and specialty chemicals, while valuations of most ‘growth’ stocks remain rich.

Also Read |  World Consumer Rights Day │ Fintech firms must examine robustness of their tech platforms

The advent of numerous fintech companies on the horizon is a great advertisement of the enormous business opportunities that India provides, and can, also significantly advance the cause of financial inclusion in the country.

As we observe World Consumer Rights Day 2022 on March 15, for which  ‘Fair Digital Finance’ has been chosen as the theme, it would thus be fitting if the occasion could lead to a relook by fintech companies at their technology platforms and algorithmic models to find out how these may be improved to better serve customer interests.

At a time when a large quantum of transactions is being done digitally, technology vulnerability of fintech companies, especially their inability to adequately safeguard customer data, could have adverse connotations not just for the specific entities and their clients, but the entire financial sector. The cumulative value of digital transactions in India surged from Rs 15,887.88 crore in April 2021 to Rs 23,099.34 crore in February.

In April, a World Bank Group Policy Research Paper titled ‘Consumer Risks in Fintech – New Manifestations of Consumer Risks and Emerging Regulatory Approaches’ had also emphasised this fact by stating: “Platform or other technology malfunctions can have adverse impacts on consumers ranging from inconvenience and poor service to monetary loss and loss of data integrity, the risk of which may be increased due to heavier reliance on automated processing of transactions”.

Making the algorithmic process fairer could ensure that it is not being discriminatory towards any demography, socio-economic category, and place of stay of likely customers. More importantly, a periodic review of the algorithms used could prove handy in determining whether these are in line with international best practices, and appropriately factors in the India context.

The 2,000-plus fintech companies operating in India — the overwhelming majority of which have come up in the last five years — could also examine whether their governance models and existing systems and processes are robust enough to handle rapid growth, while not compromising with the quality of service they provide to customers.

Embarking on such an exercise could benefit the fintech segment overall in terms of being able to identify and address the likely pain points that may emerge in future through an unbridled rise in transaction numbers. An initiative of this kind could also make the sector more resilient through the introduction of upgraded systems and processes, including the way it meets its manpower requirements and trains employees for their assigned jobs.

From an individual fintech company’s perspective, the gains from such efforts could be in the form of becoming more sustainable, an increase in its customer-centricity, and a rise in its attractiveness among potential investors. All these combined could help a company stand out from its peers in a market that is increasingly getting commoditised.

Given the importance of the financial sector in the economy, authorities, too, may consider stepping up their vigil to ensure that fintech startups are not overreaching themselves to achieve ‘unicorn’ status at the earliest and, also, not luring customers with lofty promises that they may find difficult to meet later. Authorities taking a closer look at how the fintech companies are going about their jobs could lead to the long-term sustainability of the sector by ensuring that its operations remain within a defined rule-bound framework. Moreover, it would reduce the likelihood of some fintech firms trying to play fast and lose to earn more money in the quickest possible time.

Significantly, it would further increase the faith of ordinary people in fintech companies as authorities could nudge fintech companies to provide more information on customer grievance handling processes, including likely turnaround times to settle complaints.

There is little chance of some level of pro-activism shown by authorities to protect customer interests coming in the way of the growth of the Indian fintech sector, including overseas investment flows into this arena. No progressive fintech company or likely investor would mind that as they too realise that for authorities anywhere citizen interests would always come ahead of everything else.

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