In conversation with Nilesh Shah
During this time of uncertainty, experience counts like gold. And now that the markets are passing through one of the toughest phases of sharp ups and downs, we at Ventura have been inviting experienced and seasoned financial professionals as guests on our platform who can offer their unique perspective to our readers.
Lately, we caught up with one such market veteran, Nilesh Shah. He doesn’t require any introduction but for the few who may be unaware, he is the managing director of Kotak Mahindra Asset Management Co. (Kotak Mutual Fund) and has over 25 years of experience in the asset management business, having served in strategically important leadership roles.
25 highlights from our interaction with him…
- Today’s crisis is unprecedented; none of the current fund managers have witnessed anything like this during their careers.
- It’s a three-dimensional crisis—medical emergency, real-economy crisis and financial crisis.
- Shape of the recovery curve depends on two factors—time taken to find the medical remedy and the quantum of fiscal and monetary stimulus.
- If a medical solution to coronavirus is found within a few months and a hefty fiscal and monetary stimulus package is announced, a V-shaped recovery is possible; in the worst case scenario, we might see L-shaped progress, if the medical remedy takes too long.
- There’s a blessing in disguise—falling oil prices will help India save USD 40-45 billion.
- Since oil is a cyclical commodity, prices might revive post crisis, once the demand improves. Geo-political developments will have their bearings on prices but broadly they will be driven by demand-supply dynamics. Oil prices to remain range bound between USD 40-60 per barrel once the present crisis is over.
- Globally, China has been looked upon as the exporter of virus while India as the exporter of medicines. This goodwill enhancement will help India attract foreign capital (FPI and FDI both) over the next few years.
- Foreign capital is crucial for growth beyond 8%. With foreign capital, achieving 10%-12% GDP growth will become possible.
- In 1980, India failed to capitalize on the outsourcing trend in manufacturing; Coronavirus pandemic has given India a golden opportunity to provide the alternative of Made in India to Made in China. This will help further in shaving off the trade deficit.
- Collapse in oil prices and higher exports might help India reduce the trade deficit by nearly USD 60 billion.
- From the market perspective, it’s difficult to say if markets have bottomed out at 7,500 unless there’s a permanent solution to the medical emergency.
- The market has become a time travel machine which is now allowing us to travel 4 years back to buy large cap stocks, 6 years back to buy mid cap stocks and 9 years back to buy small cap stocks.
- Investors with medium risk appetite would be better off if they invest in a multi-cap portfolio.
- Small cap stocks to do well for those with a very high risk appetite and a longer time horizon. Nonetheless, one must buy selectively.
- Sectors that might potentially do well over the medium term are: Telecom, Pharma, Power, Food Processing
- Sectors that might not do well over the medium term: Travel, Aviation, Hotels and Multiplexes, among others
- Low leveraged and better managed companies from the sectors that will be potentially beaten down by Coronavirus pandemic might gain market share as many others go out of business.
- IT and financial stocks might do well selectively.
- High-leveraged companies might suffer the most while those with low leverage might emerge stronger hence it would pay off to follow the bottom up approach (to focus on companies) rather than top down (depending on macroeconomic and sector-specific factors) for investing.
- Lenders having adequate liquidity and high asset quality would do well as compared to those with low liquidity and moderate asset quality.
- Low debt IT companies, which can save cost on account of the potential trend of work-from-home and have a high exposure to growing business domains, might marginally outperform the bell-weather indices.
- India’s chemical sector is gaining prominence as Indian companies have now started receiving multi-million-dollar contracts. India is well placed vis-à-vis China as far as future growth is concerned.
- Now that earnings are stagnant and expected to take a hit due to coronavirus pandemic, PE ratio isn’t the right valuation parameter. Instead, one might want to use Market Cap to GDP ratio, which is around 52% at present. Near the bottom of 2008 crash it was around 43%.
- Besides equity, gold is another asset class to watch out for. As long as the high-liquidity-low-interest rate scenario prevails, gold might continue to do well. If China decides to shift a part of its forex reserves to gold to stave off potential punitive measures of the west holding it responsible for coronavirus pandemic, then that would be a positive for gold.
- The recent discontinuation of 6 debt schemes of a fund house doesn’t reflect any stress at the systemic level. One should look at individual scheme portfolios before investing.
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We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.