The Nifty 50 surged 24 percent in Samvat 2080. "Keeping those lofty return expectations is more likely to result in disappointment in the Samvat 2081," Nilesh Shah, Managing Director of Kotak Mahindra AMC said in an interview to Moneycontrol.
According to him, FPI selling (of more than Rs 1 lakh crore in October, the highest ever in a month) in India is driven by near-term valuation concerns. However, "As long as we deliver higher earnings growth and better governance, FPIs will invest in India. Subah Ka bhula sham Ko Ghar lot aayega," said Nilesh Shah, who has more than 28 years of experience in capital markets and fund management.
After earnings below expectations in Q2FY25, he believes earnings should recover in the 2H FY25. "If we push growth through monetary policy easing in CY 25, then earnings can cover the gap," Shah said.
Do you expect the market to end with a 20 per cent gain in Samvat 2081 as well?
Thank you for considering me wise enough to predict markets in the short term. If I had that knowledge, I wouldn't be an employee. In my three decades in the market, I haven't met a person who can consistently predict where Sensex will be after one year.
With that caveat, I think keeping those lofty return expectations is more likely to result in disappointment in the Samvat 2081.
In Samvat 2081, what major risk factors could impact sentiment?
Markets are concerned about
- Energy and commodity prices, as well as their supply are getting disrupted by the geo-political events.
- Subdued quarterly earnings in Q2FY25, with some sectors witnessing a slowdown in August and September 2024. Subdued private sector investment, as well as consumption, can adversely impact earnings growth in FY25.
- Gradual deterioration in the US and China Debt situation can keep global interest rates elevated and the top two economies of the world on a shaky foundation
- Lack of political and social consensus on reforms in India, which is necessary for accelerating growth
The markets will always have reasons to worry. If the above reasons don't materialise, there will be more concerns. Investors make money riding over the wall of worries.
Which sectors are you monitoring for Samvat 2081?
We had warned about valuation concerns in low-floating stock counters across PSUs, SMEs, Microcaps, and sectors like capital goods, consumer durables, and infrastructure. Finally, the correction has set in those stocks.
I still believe that there is some excess in a few sectors where the street believes that the management of these companies is like Hanumanji, who had the power to jump across the sea in one jump. We all know that Hanumanji is divine. Management is human.
We are watching quality over momentum, reasonable valuation over expensive valuation, and high-floating stock over low-floating stock companies. On a bottom-up basis, amongst private banks, IT, Pharma, Telecom, Consumer staples, and Cement sectors, one will find the market outperformed.
In the short term, do you think the market will limit corrections to another 3-5 per cent from this point? Are the selling by FIIs and muted earnings the only reasons for the sell-off?
No one can predict how much lower the market can go. Sell-offs are happening only in those counters where valuations were stretched and greed overtook rationality. The rest of the market is experiencing healthy consolidation.
Do you anticipate the third quarter earnings season will also be weak?
The earnings season is mostly below expectations. Earnings have been adversely affected by rains, low government spending, the Shraadh period, and a slowdown in exports due to a sharp increase in freight costs. We believe most of these factors are behind us, and earnings should recover in the 2H FY25. The festival season is sending a mixed signal. If we push growth through monetary policy easing in CY 25, then earnings can cover the gap.
With FIIs selling over Rs 1 lakh crore in October, the highest in a single month, are you concerned about this significant outflow?
FPI selling is joint across most emerging markets. We think FPI selling in India is driven by near-term valuation concerns. FPIs will find India attractive to invest in, considering a longer-term price-to-earnings growth. As long as we deliver higher earnings growth and better governance, FPIs will invest in India. Subah Ka bhula sham Ko Ghar lot aayega.
Is the market genuinely worried about the upcoming US elections?
Markets are watching the US elections. In the last two presidents, Donald Trump and Joe Biden, the US fiscal deficit has averaged much higher than that of any other president except during the Second World War. Unfortunately, there is no debate on the fiscal consolidation path in this election campaign. The US is the largest economy in the world. If its deficit and, consequently, debt go out of control, it will have serious consequences for the world.
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