Risks to India fading away automatically; God is Indian it seems, says Nilesh Shah

Nilesh Shah, managing director of Kotak Asset Management

Nilesh Shah, managing director of Kotak Mahindra Asset believes that God is Indian as risks to India are automatically fading away. He cites an example of how monsoons were uneven in August but recovered in the next month, and tensions over crude price reaching triple-digits have also stayed in a double-digit number.

“We were worried about the monsoon as August rains were poor, we had double-digit deficiency, but in September the rains recovered,” said Shah in an interview with Moneycontrol.

Despite the driest August in a century, rains in September turned back due to unexpectedly heavy rains in the month. Early in the monsoon season, the IMD and several global agencies had expected rainfall to be below normal on the back of an El Nino.

“Oil (price per barrel) was threatening to go to triple digit. The US proposed releasing sanctions on Venezuela and then Saudi Arabia probably ensured that supply increases and oil prices remain at $80 per barrel and not at $100 per barrel,” said Shah.

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The US broadly eased restrictions on Venezuela’s oil sector in October and asked the country to produce and export oil to its markets for a period of six months without any limitation. The United States was seeking ways to increase global crude flows in order to alleviate high prices caused by sanctions on Russia and OPEC+ decisions to reduce output.

Even though some of India’s problems are getting resolved on its own, investors should not become complacent, he said.

On freebies 

Shah says that today every political party is looking at providing freebies to win elections. However, India is still a developing economy and doesn't have the budget to provide unlimited subsidies, said Shah. Commenting on that he says that India’s fiscal prudence during COVID-19 is giving the country a relatively better economic trajectory and premium valuation. “If I let go of that fiscal prudence because you want to provide freebies to people then my valuation will get hit at some point of time,” said Shah. He further said that he can just hope that political parties just keep on talking about freebies and they repackage existing subsidies which are necessary to the citizens, while not letting the fiscal prudence drop.

Valuation 

Shah says that earnings growth is not a worry, but valuation is. “Our worry is the valuation premium that we are enjoying,” said the managing director. He says that other than valuation, within the 3Gs, growth, governance, and green; growth will come and regulators have empowered institutional investors to enforce regulation, so the two things are not a problem.