Nifty at 17800 still expensive; Nikhil Kamath of Zerodha says 5-10% correction will be good for markets

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November 04, 2021 12:09 PM

Despite the correction at 17,800, markets are still frothy and expensive. Looking at the rally we just witnessed, 1000 points is really nothing.

Nikhil Kamath, co-Founder, Zerodha and True BeaconNikhil Kamath, co-Founder, Zerodha and True Beacon

Nifty 50’s correction at 17800 still looks frothy and expensive, says Nikhil Kamath, Co-founder, True Beacon and Zerodha. In an interview with Kshitij Bhargava of Financial Express Online, Nikhil Kamath, who has been named as the youngest philanthropist in the Hurun EdelGive list 2021, says that even if there’s a 5-10% correction going forward, in the long term it will probably be good for the market. On the IPO front, Kamath advised investors to exercise caution, and a healthy amount of scepticism. He also advised not to buy an IPO just because of the fear of missing out.

1) We’ve seen some corrections recently, is it good enough or do you anticipate more weakness ahead?

I’d anticipate more of a slowdown. If the benchmark is pre-pandemic values, we have barely got back to it but if the benchmark was after the complete lockdown was implemented, then the numbers look better. It’s still a very short-term perspective. For a longer look, you must compare the numbers to something 2 years ago or even a year and a half prior. You’d notice that the earnings are not really looking that good.

2) This Diwali, what sectors do you think investors should invest in?

If you were to trust the newspaper headlines, real estate looks promising. I would agree to disagree though, and my advice would be to stay away from it. The values are fair to overpriced, depending on which variables you focus on. Sectoral wise, manufacturing, IT and pharma are the most fairly priced right now, in my opinion.

They also have a longer runway and longer-term contracts, which gives them more scope and potential to do well, at least over the next three or four quarters.

I don’t expect too much earnings growth in mid-cap or large-cap. If you leave the larger companies aside, there is a huge sector in the market, the MSME sector, which is a big employer in India, where the earnings are bad, and there is a crisis on many levels. Honestly, I’m not too optimistic about the earning numbers that are coming out today. It would be interesting to watch what happens in the next quarter maybe when things have normalized more.

Despite the correction at 17,800, markets are still frothy and expensive. Looking at the rally we just witnessed, 1000 points is really nothing. Like last month alone, we ended the month up about a percent. I would say that even if there’s a 5%-10% correction going forward, long term it’s probably good for the market. I would be happy if the markets were to stop rallying and remain range bound in a 10-15% range over the next 12 months. I think that we all need to take a breather and look at the larger picture, especially since the frenzy around the pandemic. We should aspire for some normalcy now.

3) You’ve been named as the youngest philanthropist in the Hurun EdelGive list, what more can we expect from you this Diwali on the Philanthropic journey?

I’m doing my part just like everyone else. The pandemic has really made the disparity in wealth really stark. This trend is not sustainable, we need a correction in this regard as well. All of us need to do our part to get back to normalcy. As close as we can get, at least. We need a change even at the systemic level. I’ve spoken about this earlier as well. Things like inheritance tax, property tax, taxing the wealthier population in a more efficient manner is the need of the hour. I’m advocating for a change that makes our systems more efficient, so that the system doesn’t require as much intervention just to reach an equitable space. I hope the government moves in that direction.

4) We’ve seen a lot of IPOs this week and more are expected. What do you think investors should watch for before investing in IPOs?

Well, honestly, most of the IPOs, I don’t understand. I wouldn’t name names but some of these companies do not even have any visible path to profitability. I sincerely hope I am wrong about this though.

But from my perspective, it just looks like these companies are capitalizing on the excessive hubris in the market right now and kind of timing their IPOs with the market frenzy. So, I would advise caution, and a healthy amount of scepticism. Don’t buy an IPO just because of the fear of missing out. I’d strongly suggest researching the business, see if it makes sense for you and only then apply.

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