Long term, look for disruptors to make money: Nilesh Shah

Next 10 months, do not chase the price. It will not be the time for momentum investment, Nilesh Shah, MD, Kotak AMC, tells ET Now. Shah says in short-term you 65684729 65682444 can hide in IT, pharma, blue chip, largecap , defensive companies.Edited excerpts: What is your view on markets considering all emerging market currencies and economies currently are going through a patch of adjustment? Will this emerging market slide have impact on portfolio investments in India? Clearly it is a tricky situation, where one part of India is witnessing dramatic correction. Rupee is down more than 4% in August alone. 10-year interest rate is up about 33 bps in August. On the other hand, equity market in index term is near all-time high. Clearly, from an FII point of view, they will be in two minds – one, should they look at the improving micro situations in India as is evident from the quarterly results or should they worry about deteriorating macro situation where oil prices are higher, rupee has weakened, interest rates have risen and which ultimately could have impact on growth. It is a tricky situation where FIIs hopefully will take a call on a longer term basis looking at the fundamentals of companies in which they are investing rather than taking a top-down view. A lot is happening with Sebi in terms of the FPI money from NRIs. What do you think is the impact of this and is this a big issue? There are all kind of numbers floating around -- $75 billion, $80 billion. Undoubtedly if the FIIs believe that their investments in India is not welcomed, they will take a different view. But the good part is that The Securities & Exchange board of India (Sebi) has clearly communicated that they are keeping concerns raised by the FIIs in mind. Anyway, the deadline is 31st December and there is no pressing hurry to do it tomorrow. This is an issue which can easily be resolved through consultation because on one side, FIIs have clearly said that they have no problem with the disclosure and on the other side, Sebi has mentioned that they are not in favour of restricting someone’s ability to do a business. They just want to ensure that there is no round tripping. The he objective is the same. How one arrives at a way to achieve that objective should be easily approachable. Do you think India will be isolated or a different market as earnings growth are showing the first signs of decent improvement. Do you think we are not that decoupled at all? My hope is we would be in a better position compared to 2013 to withstand a global shock. In 2013, taper tantrums created a shock but at that point of time, macro India was fragile, inflation was in double digits, the current account deficit was upwards of 4.5% and fiscal deficit was almost higher than current account deficit. Clearly that was the time when India was also going into elections after a year. Put all these things together, we were in a far weaker situation at that time. Today inflation is rising but it is rising from lower single digit to mid single digit; fiscal deficit is likely to overshoot the budgeted number but it is on a much-much lower base; current account deficit is rising with higher oil prices but it is still way below what it was in 2013. So, we have a slightly deteriorating micro situation vis-à-vis current account deficit, fiscal deficit and inflation but it is significantly superior to what it was in 2013. More importantly, between 2013 and 2108, we have taken certain steps which will create a good platform for economic growth in the future. GST has been introduced and rolled out. It has made India one nation, one market. The demonetisation benefits are now visible with higher digital payments and better tax compliance. The government has also built infrastructures in terms of road, railways, solar capacity and so on. Put together, today we are far better than in mid 2013. Second, corporate India is looking at the future far more positively than they were in 2013. Therefore, despite higher oil prices, higher real interest rates and a weakening rupee, we have a reason to be optimistic about corporate earnings growth in the rest of the financial year. For earnings to recover in a big way, the capex cycle needs to pick up. Do you think this is around the corner or is it going to be another long wait? There is a slight differentiation. If you look at the IIP series and the GDP growth, capex seems to be recovering. But when we talk with the management in listed segment, we are not seeing significant recovery in capex. Clearly, capex is coming in the non-listed segment, in real estate. Looking at industrial recovery means we are seeing investments in sectors like power where there is surplus capacity. So, it is a little further away. But will there be investment pickup led by the government spending in infrastructure like roads and railways or a pick up in real estate sector by virtue of rural demand? The answer is yes. We will see one part of investments related to government and rural India doing well but the industrial capex is a little further down the line. What is the view on midcaps and smallcaps? How do you look at the valuations there now that largecap valuations are seeming a bit stretched and the overall price points at which midcaps and smallcaps are available? My feeling is that after the corrections from Jan 2018 level, midcaps have become worth looking at it. But clearly, over next 10 months, we expect markets to be highly volatile. It will be volatility partly because of global factors: a) interest rates in US are rising. B), Liquidity injection across US, Europe and Japan is slowing down. C) A tariff war is raging between US and China and India could have see collateral damage. Most important for us, oil prices are on their way up. From $40-60 a barrel, it has gone up to the $70-80 a barrel. All these global factors will have their own impact on Indian market on the way up. Second thing is valuation. Clearly there are some largecaps which are in overvalued category and finally, the political scenario. In May 2019 general election, if India votes for a stable government committed to reforms and growth, markets will be fine. But if we end up getting a coalition government which is not committed to growth or reform, there will be adverse reaction from the market. So over next 10 months, there will be enough opportunity for you to invest on a correction. This is not the time to chase the prices. This is not the time to do momentum investment. This is the time to build portfolio on correction. In such a market place, do you think the best place to hide are export stocks? With the sort of currency move that we are seeing right now, should pharma and IT hold higher weightage in portfolios? If you are taking a shorter term view, then yes IT, pharma, blue chip, largecap companies, defensive companies are the place to hide. If you are taking a longer term view, then you have to invest in companies which are using technology to disrupt the business models in various sector. Today we are at the cusp of digital and technological revolution just like we were in 18th century for industrial revolution. During industrial revolution, India missed the bus and partly because of that along with colonisation, our share in global GDP came down from 25% to less than 1%. Today world is at the cusp of digital and technological evolution. We should not miss the bus and if we miss the bus, there will be adverse consequences. It is not only technology and pharma where digital and technology is creating disruption, it is even in a commodity sector like textiles. Companies which will be agent of change, which will be harbinger of digital and technological revolution will outperform the market that is where investor will make money. Companies which are like dinosaur not reacting to the changed environment will become extinct. You would not 65696452 make money with them.

from Economic Times https://ift.tt/2wJYR6f