Nilesh Shah, veteran investor and Managing Director at Kotak Mahindra Asset Management, believes longer term investors can now selectively start accumulating quality stocks after the recent selloff, and should not hold a market view based on returns of the past six months.
"Nifty is trading a little below its historical average valuation. This is a fair value market. The excesses of the past have been corrected and now this is probably a time for long-term investors to start accumulating," Nilesh Shah said during a conversation on CNBC-TV18 on March 4.
Shah cautioned that the outlook for the coming months is not completely clear. "If they (FPIs) are selling aggressively, undoubtedly, buyers will continue to buy at lower and lower prices. As long as they are selling, we think markets are unlikely to settle."
"Never stand in front of a running train... It is your opportunity to accumulate, not to buy everything today," Nilesh Shah added.
While foreign portfolio investors are not a homogeneous set, Nilesh Shah cited possible triggers which he believes led FPIs to turn sellers. One being the disappointment due to the GDP growth numbers released in September and then December 2024. Corporate earnings during the second and third quarter too were below expectation, failing to justify valuations.
Secondly, US President's clarion call to 'Make America Great Again' has effectively sucked money from all emerging markets. "Every emerging market is witnessing outflow, and China hasn't published numbers since October 2024. So, we don't know whether they are receiving inflows or outflows. But if someone is not publishing number, your guess is likely to be as good as mine," Nilesh Shah said.
Thirdly, The rupee has been overvalued, said Shah. If I had to sum up, maybe there was a trade where rupee was likely to come down, Indian market was likely to come down, American market was likely to go up, there was a trade waiting to be taken, and FPIs took it. A large part of that is now behind us, but right now, the momentum for FPI is on the selling side."
Nilesh Shah underscored the heterogeneity of FPIs, as University Endowment Funds as well as Sovereign Wealth Funds have been buyers in these times of extended selling, with long-only and US-based FPIs along with pension funds being the primary sellers in Indian equities in recent months.
While there's no accurate way to gauge, Nilesh Shah said a key sign of a market bottom could be when the aggressive selling by FPIs stops, as they turn net buyers, once valuations look attractive.
"At the end of the day, stocks are a slave of earnings. Value is what you get, and price is what you pay. So, if the valuations become cheap, say 14 times forward or 15 times forward, then I would certainly say that the market has bottomed out," Nilesh Shah added.
The third key indicator, according to Shah is the geopolitical factor. "As of today, we are in a situation where America is putting tariffs, their markets are going down and so are other markets. It is a lose-lose trade rather than a win-win trade. If there is a reversal in those geopolitical scenarios, the market will bottom," Shah said.
When asked if tweaking the capital gains tax would be a wise idea, in an attempt to arrest the selloff, Nilesh Shah said there should be parity. "An investor is invested, whether it's domestic or global, and we should treat them equally." While there are demands to lower taxes for FPIs, foreign investors are also hoping for stability in taxation policies.
A reduction in taxes is not an assurance of returns, Nilesh Shah added. "We should be focused on creating earnings growth and governance," highlighting that India have delivered better returns than all emerging markets put together. "We have delivered better return than China, Brazil, Russia, South Africa. Yes, last seven months have been bad, but people have made money over here, and on that money, they are paying taxes. So, it's not easy answer," Nilesh Shah said.
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