Nilesh Shah of Kotak MF says India’s long-term growth story will thrill investors

As Nilesh Shah said in a recent interview with Hitesh Vyas, that India will soon surpass Japan and Germany as the world’s third-largest economy as it grows from $3 trillion to $30 trillion.

The Indian economy has achieved much better performance than many of its peers during a deteriorating international growth scenario, according to Kotak Mutual Fund Group President and Managing Director Nilesh Shah. During an interview with Hitesh Vyas, Nilesh Shah said that the Journey of India from $3 trillion to $30 trillion will persist to excite investors, and that the country will soon surpass countries like Germany and Japan and will become the third-largest economy in the world. Investing in India, according to him, should be done with a long-term horizon in mind, as the returns are sure to be adequate over the long-term.

What is your opinion of the current state of the market?

As far as the domestic market is concerned, the quarterly results for September and December 2022 were lower than expected. According to the optical numbers, thanks to the strong performance of the BFSI sector, the aggregated results were in line with expectations thanks to the stellar performance of the BFSI sector. However, as soon as BFSI is taken out of the equation, it becomes clear that the other sectors are suffering as well. There have been some doubts in the markets in the past two quarters as a result of the subdued results.

Furthermore, the price-to-earnings ratio and price-to-book ratio of our stock are within historical averages in terms of price-to-earnings and price-to-book ratios. In comparison to our peers, we have recently started trading at a much higher valuation than our peer group. Currently, they (prices) are at fair value for local investors, but for global investors they are excessively expensive. Our earnings need to catch up with the fundamentals of the business to excite international investors to come back to India; either we need a price increase in our competitors or we need a price correction or we need some time corrections.

In the next few quarters, what will be the driving force behind the markets?

I believe that in the near-term, the markets are going to be driven by what happens in the corporate sector. According to the IMF, in the long run, India is expected to surpass Japan, which has a $5 trillion economy today, to become the third biggest economy in the world by the year 2028. Several of us believe that this number will occur in 2030, but a few of us think that it will happen in 2032 as well. In spite of this, each and every individual believes that India will overtake Germany and Japan to become the one of the third-largest economy within the next ten years in the world. India is a long-term story that will attract investors because it is a story that has a lot of potential.

While there is some uncertainty about the near-term outlook for the market, we still believe that it is a market to buy on the correction in the short-term. There are so many exciting growth stories out there, but this is one of the best. While there will be challenges along the way, as long as you remain invested, you should be able to earn adequate returns.

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Do you expect Q4 earnings in 2023 to be higher?

It is fair to say that banks and companies involved in financial services are fairly bullish at the moment. There is a lot of anticipation for the summer season when it comes to consumer durables. This is more of a bottom-up approach than a top-down approach. In my opinion, there will be a certain number of companies that will meet investors’ expectations and others that may not be able to meet them.

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Do you see a return of FPI flows in the near future?

Investors’ portfolios include FPIs in India because they have made so much money. It is possible to exit the Indian market in the near future. If you are interested in selling $8 billion of stock in a financial services company, you can get an exit if you wish to do so. There are very few markets that offer this kind of opportunity. As well as being expensive, you are also very difficult to find. The question is, what should a FPI do when there are profits, expensive valuations, and exit opportunities? This is a great opportunity for you to book your profit, and there is nothing better than that.

It is my opinion that in the near term, FPIs may decide to sell India due to its expensive valuation and buy cheaper markets like China, Korea and Taiwan because those markets are cheaper. Nevertheless, there will also be long-term FPI investors who will say that India is not a one-year, two-year, or five-year story, it is a story that will last ten years and twenty years.

We will undoubtedly attract long-term investors, even if the corrections will attract investors far more than the rises. There is a possibility that we may see some profit booking due to the expensive valuation relative to others due to the fact that we have already generated profits for investors and because there is an exit available in India.

What has been the impact of the Adani Group crisis on the sentiments of retail investors?

There was a substantial amount of mutual fund exposure on the equity side of Adani Group that was either passive or arbitrage exposure. There is a very low level of active exposure. The businesses they have are all real and we are comfortable with the fact that they are real. There is a manageable amount of debt on their balance sheet. While buying equity, the real challenge for us is not the business or the debt of the company, but the valuation of the company. The majority of the time when we looked at the shares of the Adani Group, we found that their valuation was higher than our fair value and as a consequence, we were unable to purchase them above our fair value.

According to SEBI’s research, most retail investors lose money when they enter the market directly in order to make money. In contrast, only 11 percent make money when they enter the market directly. It is very important for retail investors to remember that futures and options do not have a future for them. An ordinary investor’s financial health is adversely affected by trading on the stock exchange. It would be better if they came by a mutual fund-led professional to assist them.

How would you advise retail investors to invest in the stock market?

Make sure you are investing for the long run. There is no way to predict what will happen in the future. Consider the journey of India from $3 trillion of GDP to $5 trillion of GDP to $10 trillion of GDP to $30 trillion of GDP. It is very important that you invest regularly. It is much better to keep on investing at every level as we do not know when markets will go up and down, so it is much better to participate in this journey of $3 trillion to $30 trillion at every level. 

It is important to be a disciplined asset allocator and not to invest based solely on the performance of the previous year. Consider your risk profile and investment goals before investing, and then make a decision based on those factors.