How top fund manager sold India’s growth story to Japanese investors with a single slide

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Published: November 1, 2017 12:46:25 PM

While people in India may be aware of the country’s growth prospects and its potential, Nilesh Shah of Kotak AMC says that he explained India’s growth story to Japanese investors using a single Powerpoint slide.

National anthem, patriotism, patriotism problem, Anupam Kher Nilesh Shah of Kotak AMC says that he explained India’s growth story to Japanese investors using a single Powerpoint slide. (Image: Reuters)

While people in India may be aware of the country’s growth prospects and its potential, Nilesh Shah of Kotak AMC says that he explained India’s growth story to Japanese investors using a single Powerpoint slide. In an interview to CNBC TV18, Nilesh Shah, Managing Director of Kotak AMC said that in his recent visit to Japan, he used the Indian car manufacturer Maruti Suzuki’s rise to explain the country’s potential. “I carried just one chart with me, and said, I can explain India in hundred slides or I can explain India in one slide. I compared Maruti Suzuki’s performance with Honda, Toyota, Nissan, General Motors, Ford and all the listed companies, and said that look, the world’s best performing automobile stock is in the Indian market, and this is how Suzuki has made money in India. Surprisingly, they were not aware of this story and they all lapped it up.”

In the same interview, Nilesh Shah said that a lot of Japanese investors are looking to invest in India. “We went to meet hundred plus distributors in Japan which include banks and independent financial advisors. There are two conclusions: There is tremendous respect for India. They believe that US, India, Japan and Australia will form a union to defeat Chinese domination. Second, they genuinely believe that like how Japan was in the 60s, India is now going through a period of exclusive growth,” Nilesh Shah told the channel.

Nilesh Shah pointed out that the return expectations of the Japanese investors are moderate, as their interest rates are low. “They have excess capital, near 0% interest rate, highly retiring and aging population and very happy to invest in India. Their return expectations are moderate, so the cost of capital from Japan will not be very expensive,” the expert noted.

Even as the Sensex and Nifty continue their upward journey, the expert said that the valuations have not yet peaked. “Indices are at all-time high, valuations are not at all-time high. We can’t compare the bull market valuation of 1991, 2000 and 2008. In 2008, profit as a percentage of GDP was 7.1%, in 2017, it is 3%. When I compare valuations, in 2008, it was peak profitability cycle valuation. Today, we have a depressed profitability valuation. There’s no guarantee that 3% GDP will move towards 7% valuation, but certainly it will move towards 5% level.”

Explaining how profit as a percentage of GDP would pick up, Nilesh Shah said, “If real interest rates start stabilizing to a little lower level and the capacity utilisation of India Inc, which has declined from 80% to 73%, starts moving towards 78 and eventually 80%. This combination of lower interest rates and higher capacity utilization could result in improvement in profitability and take care of the valuation.”

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