Nimish Shah, Chief Investment Officer – Listed Investments, Waterfield Advisors, advises long-term investors in India to be cautious, but not pessimistic. Choose boring but good Quality business over the noise-making momentum businesses.
Shah has close to 25 years of resourceful experience in capital markets across diverse asset classes and platforms. He has handled a wide spectrum of clients that include family offices & trusts, mega wealth individuals, HNIs, institutions, banks, funds, trusts, corporate treasuries and government companies.
In an interview with Moneycontrol's Kshitij Anand, Shah said Nifty EPS could grow by 15-20% in FY22. That would be an excellent growth number considering the impact of two COVID waves that have hit the economy.
Edited Excerpts -
Q) The first six months of 2021 were exciting, at least from a stock market's point of view. Do you think the up move can sustain?
A) The returns for 2H2021 will depend on the top and bottom-line growth in Q1FY22. On one side, metals, commodities and cyclical sectors would see good growth of top and bottomlines.
On the other hand, sectors consuming these commodities would see a drop in bottomlines. Overall, we could see Nifty EPS grow by 15-20% in FY22.
That would be an excellent growth number considering the impact of two COVID waves that have hit the economy. But, the returns could be patchy and sector-specific.
Q) Retail investors emerged as a support for Indian market. MF investing as well as investment in direct equities has picked up. What do you have to say about the trend with respect to financialization of household savings?
A) Higher allocation of household savings to equity markets has been a long-standing dream of many capital market enthusiasts.
Now, that we are witnessing increased allocation by individuals in the direct stock markets, it is surely a welcome sign. The fear is the instant gratification that many new-to-market investors have witnessed in the last 12 months.
Retail investors should take to stock investing as a marathon and not as a sprint. Markets are forever. Take time to invest wisely over a period and with a lot of conviction. Do not leverage and buy stocks.
If investors act wisely, then yes, we would have just scratched the surface. If not, a bear phase can take away both money and sanity from an investor.
Q) What are your views on the domestic economy-related stocks as the economy is on the revival path amid unlock announcements by various state governments?
A) Growth is dependent on demand and supply of goods. While last year the supply was disrupted due to the first wave, the demand seems to have been disrupted in the second wave of Covid.
Economic revival would largely be dependent on the length and depth of the demand revival across sectors. While Government support (in terms of easier provisioning norms and credit guarantees to Covid-affected sectors) will play a role for private spending to revive, it will be the Government spending that will prop up demand in the next couple of quarters.
This, in turn, should support top-line growth in the domestic economy-related stocks.
Q) What are your cash levels at this point? Do you foresee some consolidation and then can be later deployed at lower levels?
A) Being under-invested in the equity is not advisable. During bull runs or periods of high returns, it is wiser to sell the laggards and trim the tail in the portfolio.
This is the time to re-balance the portfolio and rationalize investments as per long-term strategic asset allocation across large cap, midcap, smallcap, and unlisted stocks.
This is also the right time to reduce over-diversification or concentration in portfolios.
Having said this, the sale proceeds can then be invested in a staggered manner over the next 3 to 4 months. It could well mean a 15-20% of portfolio remaining as ‘dry-powder’ for the next few months.
Q) Do you think there is further room for rerating in small & midcaps?
A) Market cap re-rating is largely done within the mid and smallcap segments. Companies with good growth, a strong product moat, and a high return on equity will continue to rule positions in investors/ und manager portfolios.
Q) What should be the strategy of investors for the next six months – go overweight on largecaps, and underweight on Midcap and smallcaps?
A) Any over-weights should be corrected by weeding out the laggards or cyclical that drag down portfolio returns and/or increase volatility. Correct the under-weights and invest in a staggered manner over the next 3 – 4 months.
Q) Most analysts are complaining about Nifty valuations which are above long-term averages. What are your views?
A) India entered Covid in FY20 on the back of falling GDP growth - from 6.1% in FY19 to 4% in FY20. Support from the Government, the liquidity provided by domestic and foreign institutional investors, and constant FDI flows go on to prove the potential of growth in the Indian economy.
Assuming GDP growth for FY22 and FY23 remains above 8.5% and 6%, respectively, we feel that the markets are fairly valued.
At current market peaks, valuations would look stretched. But, market valuation should not be looked at as the only guiding factor when buying stocks.
Only a few very highly valued companies, due to their weights in the Index, push up the overall valuation and make the markets look expensive.
Q) What is your investment mantra?
A) As a long-term investor in India, be cautious, but not pessimistic. Choose boring but good Quality business over the noise-making Momentum businesses.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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