Even as the Sensex and Nifty rallied to record high levels on the fourth consecutive day, Nilesh Shah said that the recent rally cannot be termed as exuberance. “I wouldn’t call the recent rally as exuberance. While banking, IT stocks have gone up, there are still small caps which are significantly below their 52-week high,” Nilesh Shah of Kotak AMC told CNBC TV18.
Amid the ongoing carnage in the airline space, with shares of India’s largest airline IndiGo tanking to a 52-week low, Nilesh Shah said that companies are unable to maintain margins in the space despite growth in volumes. “Warren Buffett once said –If someone had shot down Wright Brothers, so many fund managers wouldn’t have lost money in aviation stocks,” Shah noted.
According to Shah, there are not many pockets of undervaluation in the current stock market. “We have to find out what the market is pricing in terms of growth, versus what is potentially achievable. There will be pockets where the markets have priced in too much growth, like consumer or retailing stocks, and there will be pockets where markets have priced in little less growth than what is achievable. This will be in quality mid caps, where governance is solid, and the business volumes are coming through,” he told the channel.
Taking stock of the ongoing earnings season, Nilesh Shah said that the earnings have been either in-line or even ahead of expectations. “There are very few stocks which have failed to meet investor expectations. Whether it’s small cap or large cap, the management is viewing the future much more positively. The GST reduction done by the government for various items has definitely been welcomed by management of those companies. Overall, there has been a sense that economy has turned around and growth momentum is picking up” he said.
Taking stock of the earnings reported in the IT sector and the rally in shares, Nilesh Shah said that there is a re-rating in the sector. “We have seen stocks delivering way ahead of the company fundamentals. There is a massive re-rating in the sector, may be because of the rupee depreciation, because of order intakes or currency depreciation or because of defensive nature of the sector vis-à-vis rest of the market. Clearly, many of the largecaps are trading at their historical average valuation,” he noted.