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    Move from NBFCs to private banks, focus on consumption: Nilesh Shah, Kotak AMC

    Synopsis

    Keep a portfolio for long term investments looking at this growth story and keep a satellite portfolio on the valuations and volatility due to such events.

    ET Now
     In a chat with ET Now, Nilesh Shah, MD, Kotak AMC, says there is no harm in increasing your risk antenna and picking up the signals in terms of behaviour, if you want to take a shorter term call. Edited excerpts

    ET Now: When we thought we are on the brink of 9000 and set for fresh highs, the rally of late had faltered a bit and I am not talking about today. I am talking about news prior to the surgical strikes. What to your mind should investors do right now because up until now till November there are a couple of global uncertainties – US Fed and the US elections. Do you think investors should have a longer term timeframe and a longer window to decide and wait for the correction unless they want to time the market?

    Nilesh Shah:
    My recommendation will be that the time to invest into markets with a lot of aggression was somewhere towards February 2016. By sticking to fiscal responsibility and budget management target, India assured the global investors as well as local investors that our macros will remain good and the valuations were pretty cheap compared to even historical average. Now as we are near 9000, Nifty valuations are no longer with you as they were in February. The only way you can overcome that scenario is by increasing your time horizon or reducing your expected return.

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    Second, it is important to always have allocation towards asset classes like equity. When an event leads to a market becoming cheaper, you have to increase your allocation to equity and if market becomes expensive, you can take little bit of the profits out.

    You have to have a core portfolio if you are a direct investor which is long term and you also have a satellite portfolio which is moving in and out of the market depending on the valuation. In today’s environment, valuations are a little bit higher than what the fundamentals deserve. It is a liquidity driven rally but liquidity is not driven by greed, it is driven by hope because there is visible improvement going forward. So keep a portfolio for long term investments looking at this growth story and keep a satellite portfolio on the valuations and volatility due to such events.

    ET Now: In that near term portfolio, what is the sense that you are getting about right now? If one has to look at adding more stocks now, do you stick by the leaders of the last leg of the rally, stick with NBFCs, maybe some tyre stocks and pure play auto companies or do you look at newer sectors to deploy money into?

    Nilesh Shah:
    My recommendation will be to move from NBFCs into private banking. Both are in the same opportunity space but at a much lower valuation in private banks vis-à-vis NBFCs. I will recommend also the consumption basket which is going to take some time to revive. Today investment is more by government spending and foreign direct investments rather than private corporate India investments. So let us focus on the consumption side of the story. A good monsoon will revive rural economy, RBI has pumped liquidity which will reduce working capital cycle, improve credit growth and support consumption financing.

    We are also seeing some amount of transmission of lower borrowing cost at the consumer level as well as industrial level. There is the Seventh Pay Commission bonanza coming to the government employees. So all these things put together, we believe right now in this phase of economic recovery it is the consumption related sectors which will do well and any sector which is financing this consumption also will do well. So our recommendation will be to look at consumption related sectors rather than investment related sectors at this stage of economic cycle.

    ET Now: Just wanted to understand from what the outlook is now on the liquidity situation? What is the sense that you are getting? Would be the FII standpoint on, how would they be looking at our markets?

    Nilesh Shah:
    Yesterday we hosted a delegation of FIIs who were all coming for the first time in India and it was surprising to see their bullishness on India even though it was their first visit. Probably they would have regretted the fact that they did not visit India till now looking at the kind of wealth creation which has been seen...

    ET Now: In just the very near term does it seem like it is going to take some time for the dust to settle down because the globe is only just waking up, the West that is and they are going to begin reacting to this news only now?

    Nilesh Shah:
    Definitely we have to wait and see market participants reaction to predict short term movement. It is extremely impossible to predict how things are going to happen because we are no longer having homogeneous FII investment, we have a range from hedge funds, private equity funds, family offices, ETFs, listed long only funds, long short funds, we have a geographical diversion starting from Australia and Japan going all the way up to countries like Chile and Canada. So in this kind of heterogeneous world to predict that this event is going to cause this reaction from all of them is unlikely to be proven true. There is no harm in increasing your risk antenna and picking up the signals in terms of behaviour, if you want to take a shorter term call.



    ( Originally published on Sep 29, 2016 )
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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