Daily Voice: Probability of a black swan event higher for equity markets, says Kotak AMC's Nilesh Shah

In Kotak MF’s view, the probability of a black swan event has increased. US Fed pivot from three rate cuts in CY 24 can swing to No rate cuts or a rate hike. Geopolitical risks from the South China Sea, Middle East and Eastern Europe remain elevated.

The election result is due on June 4. While these black swan events may still be low, their probabilities have increased.

What are your bull and base case scenarios for Nifty 50 in FY25?

Nifty 50 is trading around its historical average. The market cap to GDP ratio at 132 percent is a significant premium to the historical average. Valuations remain around the fair value as the corporate profit to GDP ratio (little below 5 percent) is also at a premium to the historical average.

If events like the US Fed pivot, geopolitical risks, elections, earnings growth, etc., are better than the market's expectations, we will likely witness a bullish market.

Our earnings growth, governance, and green transformation must be better than the peer group's to maintain bullish trends.

Are the cement stocks available at reasonable valuations?

Based on the pick-up in real estate construction and infrastructure development led by the government, it is fair to assume that cement will likely see higher volume growth in the coming days. The margins should remain better than the market's expectations if they can pass the hikes in input costs.

We assume that cement stocks provide long-term investment opportunities, and at Kotak MF, we are overweight on that sector in many of our funds.

Do you still see substantial investment opportunities in the BFSI space?

BFSI space has many subsets from PSU banks, private banks, NBFC, MFIs (microfinance institutions), capital market-related companies, etc. In our view, liquidity will remain tight in the coming days. Credit growth will slow down to a lower CD Ratio.

Banks with access to low-cost deposits should do well. NBFCs with diversified borrowing bases should do well. Capital market companies have done well and should now be market performers as they share economies of scale with consumers.

Do you see a high chance of tariff hikes in the telecom space, especially after the general elections?

The market is expecting price hikes by telecom companies. To a large extent, that is priced at the current prices. We remain overweight on the telecom sector.

Considering the economic environment, do you see the probability of no interest rate cuts from central banks this calendar year?

Given the vital data in the US, we believe that rate cuts in the US are more likely to be back-ended than front-ended.

The Bank of Japan needs to worry about the depreciating Yen. They certainly can’t think of cutting rates at current low levels.

China has already cut rates to support growth. They are likely to weigh currency depreciation rather than rate cuts to support growth in the near term.

The RBI is witnessing a Goldilocks scenario with solid growth and moderate inflation. They will be data-dependent.

In summary, there will be some central banks that will cut rates and some that will not be based on their data driven individual path.

Is it the right time to invest in the consumption sector?

FMCG and consumer durable sectors have witnessed underperformance due to low volume growth. Many have improved margins in the last two quarters with lower input costs. Consumption post-Covid is showing uneven growth. Rural consumption is not growing as fast as urban consumption.

The rural economy should do well with the IMD forecasts of a normal monsoon. This should support consumer stocks derated in the absence of volume growth. Investment in consumption stock is likely to be stock specific and based on bottom up analysis.

Disclaimer: The views and investment tips expressed by investment 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.