The markets are poised at an interesting juncture. After the recent lows, one can see some buying emerging in select pockets based on stock value and the fundamentals. Nilesh Shah, managing director at Kotak Mahindra Asset Management Company says markets are at ‘fair value’. If you are keen to understand how you need to trade in the current market conditions, here are some key takeaways from an exclusive conversation with Nilesh Shah.
Nilesh Shah’s 6 key insights on the markets at the moment –
Markets at fair value, invest more in large caps
Nilesh Shah outlined that “this is a fair value market.”. According to him, this entails that the “allocation to equity should be equal weight or neutral to your risk profile and investment objective.” He highlighted that the large caps are trading below their historical averages and small and midcaps are close to historical averages. In this scenario, he advises that, “you should be investing more in large caps. You should be overweight there.” However, for small and midcaps, he advised that one should wait for some more correction “before you become equal weight.”
He also pointed out the need to keep some amount of cash ready, “if the market continues to go down and become cheaper, you can keep on increasing your allocation and become overweight equity.” Similar to what the old saying suggests, don’t put all your eggs in one basket, Shah explained, “don’t put all your money in one go.”
Nifty FY26 earnings at Rs 1,150 to 1,200
Earnings have been a big worry for the markets and Nifty earnings have been averaging bout Rs 250 rupee earnings per share every quarter. Shah is optimistic about the fourth quarter, “It is generally better than the first three quarters because of the festival season boost, etc. I think Nifty earnings should be somewhere around Rs 262 -275 per share in Q4.”
In terms of expectations for FY26, “we move from high single-digit earnings growth to low double-digit earnings growth for FY26. We should be anywhere between Rs 1,150 -1,200 per share,” added Shah.
India needs to improve its game
How is India poised compared to its peers? As fears of recession in the US begins to worry investors, all eyes are on when would FIIs make a comeback and how can India benefit from a global realignment of allocations? According to Nilesh Shah, “India will be a beneficiary of global growth if you can convert ‘anything but China’ to ‘always India’ move.”
He added that, “I don’t think we have done a great job in that aspect but La ge raho Munna Bhai, if you keep on trying and keep making progress, some day it will work. We will be the beneficiary of global growth provided we play our cards well. We have made a beginning, but we need to improve our game.”
Rupee movement depends on China
Can the rupee slip to further lows? According to Nilesh Shah, “The rupee movement will be driven by what happens in China.” He explained that during US President Trump’s first term, when he imposed a 20% tariff on China, the currency gave way by 13%. “Quite likely China may play the same game. If that happens, then India rupee has to depreciate in tandem.” Given the fact that China is our largest trade partner, “we compete with China in many items. And they don’t play fair. They are way ahead of us. So I have no option but to keep my currency competitive with China. So, rupee movement in the near-term, in the medium term, in the long term will be determined based on how Chinese currency moves,” he added.
FII selling for some more time
Nilesh Shah does not anticipate FII selling to stop anytime soon. He believes an improvement in India’s earnings and FIIs making a comeback will go hand in hand. “We think India has potential to reach double digit earnings growth next year. So at some point of time, underweight position of FPs, our valuation and earnings growth, return on equity, and our governance process put together could bring FPIs back to investing in India.”
India’s GDP growth closer to 7%
The recent economic data has been encouraging and the market chatter about another rate cut by the RBI is gaining traction. Nilesh Shah pointed out that, “growth support requires liquidity as well as rate cuts. RBI will continue to provide liquidity. On the rate cut side, RBI will have to carefully wait,” and watch out for the US Fed. In terms of what it implies for economic growth, he added “India will be a mid-single-digit GDP growth country. If global growth is favorable to us, monsoon is good, we’ll grow it 7%. If global growth is bad, monsoon fades, we’ll grow it 5%. To take it to double-digit, India needs to take hard decisions. And unfortunately, our ecosystem does not support taking tough decisions.”