Indian market placed well for long term; expect volatility in near term: Nilesh Shah of Kotak Mahindra AMC
Edited excerpts:
What is your equity market outlook for 2024 and long term?
In the last few years, India has done exceptionally well. And it is a function of India doing well and others doing badly. Now, we are one of the world’s most richly valued equity indices.
Second, the markets are at near all-time highs while the others are at ten-year, 15-year and 20-year lows. So that shows the stark difference.
If you take a long-term view of India, we still remain bullish because we are seeing a convergence of three things. First is our earnings growth. Our earnings growth is between 12 and 15% every year. It also goes higher than 20% on a good day. If our earnings continue to grow faster, then higher valuations are justified.
The second thing is governance. Today, there are so many emerging markets where you are unsure about governance. For example, in China, their most prominent entrepreneur, Jack Ma, was stripped of Alibaba’s managerial position overnight. In Russia, if you are criticising the government, people disappear. In many other emerging markets, promoters make money, and their companies don’t. Compared to them, Indian governance standards are very strong.
The third big thing which is silently happening in India is the green transformation of India. We are the lowest per capita carbon emitter. One can say that you are just $2600 in a poor country, and hence, your carbon emission is low. But we have become 5th largest economy with the lowest per capita carbon emitter.
Now, this combination of earnings growth, governance and green growth gives us confidence that on a 5-year and 10-year basis, India looks well poised.
But, in the short term, because we are priced for perfection, there will be a reaction in the market if anything goes wrong. Could there be some reaction if oil prices go higher? If the US Fed does not cut rates as expected, would there be some reaction? If election results don’t come as per expectation, could there be some reaction? The answer is yes. So, there are events which may keep markets volatile in 2024.
However, there are fundamentals of growth, green transformation, and governance that will support the long-term trend.
How does India’s growth impact regular individuals?
So, in India, whatever one says, the opposite is also true because we are such a large country. We are like a continent. Our richest state is Delhi, whose per capita income will be very high, and the poorest state is Bihar, whose per capita income is very low. There is a big gap.
Our smallest state is Goa, which has a tiny population. The biggest state, UP, is bigger than many countries. So, when you look at India, you will have to be ready to face that. Whatever you say, the opposite is also true. If you want to impress someone, you can show them Antilia, the most expensive residential building, and if you want to depress someone, you can show them Dharavi, the largest slum in Asia. Both coexist. Now, our journey is to move from the Sub-Saharan Africa level to higher standards.
Twenty years back, 0.5% of Indians were living the lifestyle of French citizens. They were super rich. About 13% lived the Indonesian lifestyle and the rest had the lifestyle of Sub-Saharan Africa.
Now, 1% of people living in India have the French lifestyle, the Indonesian lifestyle is about 27% of India, and only 72% of Indians are in the Sub-Saharan Africa model.
In the next 20 years, we have to ensure that maybe there are only 22% in Sub-Saharan Africa conditions, 70% in Indonesia, and maybe 5% in France.
How do we do this? Between 1947 and 1991, we thought that we would distribute the cake equally. So we tried to make everyone poor, and hence, no one got enough cake. From 1991, we started growing the size of the cake. Now, when you are trying to increase the size of the cake, someone will get a bigger share because they were entrepreneurial and took risks.
Many others couldn’t take that risk, but with a bigger pie, you still get a bigger portion, even if it is smaller than someone else.
We are now $2650 per capita GDP. We now have the ability to provide free food to 80 crore Indians, which was not possible earlier.
Now, should I give fish to someone or teach him how to fish? The perfect solution is to teach them to fish so that they can live independently. But till such time happens, I have to ensure that we give fish to the needy. So, we are trying to grow and, at the same time, create inclusive growth.
It’s a tough task. What has not happened in 75 years of our history, we are trying to create, and it will be a gradual, calibrated process. But if we continue to grow the pie – we were the 12th largest economy in 2010; we became the 10th largest in 2014. Today, we are the 5th largest economy. Tomorrow we will become 3rd largest economy.
The cake is growing. Of course, someone is getting a bigger portion. But the smallest portion of a bigger cake is far better than an equal portion of a smaller cake.
What is your outlook on the interest rate? What should people do in the current scenario?
Our RBI has managed the Indian economy and financial system far better than most other central banks of the world. As a result, Reserve Bank of India (RBI) Governor Shaktikanta Das was given the Best Central Banker of the Year award.
And they navigated India in very choppy water with the least discomfort to the people in the boat. They should continue with that job.
They should allow the Fed to lower the rates and then follow up.
We expect the Fed to cut rates by March to June 2024, and then RBI has time to make the move from June to October 2024. So, if you are a borrower, you can look at borrowing for the short term because rates are likely to go down in the future.
If you are an investor, please invest long-term and lock these rates because rates will go down. I advise all senior citizens to take the longest possible instrument and lock in higher yields prevailing today. Now, where will they get it? As most of us make FDs for one year, from the second year onwards, people might see their bank FD rates coming down. So, bank FDs cannot give you long-duration maturity. Corporate fixed deposits will also have a maturity of around three years and not more than that.
You can come into fixed-income funds where we are investing in 10-year, 20-year and 30-year debentures and government securities bonds. So, try to come into long bond funds and lock yourself into higher yields.
Long bond and long maturity guilt funds will be appropriate as the interest rate goes down. These funds will make money on coupon income as well as capital appreciation.
What advice do you have for individuals who are unfamiliar with investing?
When you are ill, you go to a doctor, and then you have to go to the chemist to buy the medicines. Similarly, when you are investing, you can go to a good advisor and tell them about your current savings and your financial goals and then you can start investing based on their advice.
Also, so many online websites will help you get the right advice.
But don’t postpone. You should prepone. The saying “kal kare so ajj kare ajj kare so abhi” applies to investments as well.
Many investors are investing in direct plans. What’s your take on it?
There are positive and negative sides to it. It’s a double-edged sword. If you have knowledge about investing, it is fine to go direct because it will help you save money. But if you don’t have expertise and want to save costs and go direct, it will be a disaster.
For instance, many people invested in technology funds because they were doing very well. However, they were disappointed when they saw the gap between their returns and the fund’s returns. Most of the time, the investor returns are half of the fund returns because they keep on jumping from one fund to another fund. In such cases, you will need advice.
Moreover, in cases like 2020, you might need someone to handhold you and show you the right path.
Recently, two celebrated fund managers, Harish Krishnan and Pankaj Tibrewal, left Kotak Mutual Fund. Has there been any impact on the fund flows?
Both of them were good fund managers and left Kotak Mutual Fund after almost 15 years or so.
We lost Harish to a competitor, and Pankaj is moving on the entrepreneurial side. Now, whenever you lose good people, of course, there will be some impact on your business.
But as a management, we always have to be ready with Plan B.
While we give fund managers their space, it is within the boundaries and process of the organisation. So, if we say we will play football, they don’t go and play hockey.
Second, our research process has remained the same, which is our backbone. So it is like having one player move out and putting a substitute in their place. Sometimes the player can make an impact, but most of the time, the team wins.
Now, Lionel Messi is scoring goals because someone else is giving them passes.
Third, I believe some turnover is good because you get new ideas and talent.
So, what we have done is we have recruited three people who are equally talented and who will be adopted in our process so that there will be minimum disturbance.
We have gone and shared this information with our distributors, and they have kept faith in the Kotak brand. They feel confident that Harsha Upadhyaya, the research team and I are still here.
I haven’t yet seen any impact on the flows, but will we miss Harish and Pankaj? Frankly speaking, the answer is yes. We wish them the best, but we will hope and work to ensure we don’t miss them.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.
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Published: 31 Dec 2023, 08:41 AM IST
