The mantra from Nilesh Shah, the markets guru, is clear: Be a long-term investor, moderate your expectations on returns and buy quality rather than being driven by momentum. Shah, who wears a hat frothing with many feathers including that of group president and managing director at Kotak Mahindra Asset Management Company apart from being a part time member of the Economic Advisory Council of the Prime Minister, took time off his busy schedule to share his insights on the emerging outlook for the markets, his reading of the economy and also the poll outcome in Maharashtra.
While the much-awaited election results in Maharashtra were meant to be only one component in a host of factors that influence market sentiment, it did matter that on the very first day after the ballot counting, the stock markets opened on a strong note. Here is Shah’s take on what to read into it: The election results give confidence to investors that now the government (at the Centre) may be more willing to take tough calls to push through reforms.
As far as the elections in Maharashtra per se, whether the weight of the work done mattered or that of the welfare schemes, “the markets are fine as long as there is a balance between welfare and development.” Swing the needle sharply on either side and there could be reasons for worry, he feels.
Improving fundamentals
On the larger issue of the fundamentals of the economy, Nilesh Shah sees things only improving. “The first half of the year was subdued but the second half of FY 25 is likely to be better as the consumption story (subdued in Urban India and picking up in rural India) is likely to get a boost with a season of weddings, festivals and an increase in government spending,” he says.
On the factors that could explain the subdued consumption story, he points to elements like debt-funded consumption. “People have borrowed money to speculate and to spend and are now cutting down on their consumption.”
Selling by foreign investors
On the foreign investors selling aggressively and heading towards the US. He feels, now that is done and “in all likelihood now the intensity of foreigners selling should come down.”
With all these factors – selling by foreign investors tapering off, fundamentals improving – playing out in unison, the markets could only expected to do well.
High base
But then, here is a note of caution from Shah: This time, the market performance has to come on a base which is already high as we are trading at valuations that are among highest in the world. No, we are unlikely to improve on this and therefore returns will have to come mainly from earnings growth, which again is likely in the range of a high single digit or a low double digit.” As a result, he feels, “we need to be happy with moderate expectations on returns.”
Or as he rather succinctly puts it: “Moderate your expectations on returns for what we have seen in terms of returns in the last five years is unlikely to repeat over the next five years.”
On the larger India growth story, there is little doubt for he says, “this is one country where people will bet for the long-term.” No wonder, Shah sees value in being a long-term investor.