Expect upward mkt movement in near-term: Kotak Asset Mgmt

The recent Budget, which was presented on February 29, has laid out a righteous path of fiscal prudence, says Nilesh Shah, MD of Kotal Mahindra Asset Management. The near-term economic events indicate an upward move for the market, he says. Shah is slightly overweight on equities post Budget and says that it is unlikely that the market will revisit 6800 level unless some catastrophic events take place. “We are now advising clients to become marginally overweight on equities,” he says. Shah expects liquidity to come back in the banking sector in near-term, he says. Below is the verbatim transcript of Nilesh Shah’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is the sense, we have put on 10 percent weight from the Budget day lows, at his level are you scared to buy now, would you wide your time and wait for dips? A: If market has rallied 10 percent, obviously there will be some correction on the way. However, we are not frightened to buy. We have been advising post Budget our clients to become marginally overweight on equity because post Budget there are events which should help economy as well as the market. One, post Budget we expect parliament session to pass bankruptcy code, we expect them to give statutory backing to Aadhaar and if we are lucky, we will probably have a shot at goods and services tax (GST) as well. After that we should see rate cut by Reserve Bank of India (RBI). In the month of April, we should see liquidity coming back into the banking system which is right now reeling under cash surplus of the government. Post that, monsoon should be favourable because of the Pacific Ocean temperatures building up La Nina. So, there are events which are lining up for the market and economy which should be generally supportive. Most importantly, valuations are also now reasonable, they are not extremely cheap like they were on 9/11 or Lehman Brother crisis days but they are fair and hence we are advising our clients to buy equity.Sonia: You have lined up all the positives for the market but let me just try to play devil’s advocate here. There are equal amount of headwinds as well as we know be it weak global cues, be it no great recovery in earnings. Given all of that, do you think that at some point through the course of the year we could once again revisit our lows of 6,800 on the Nifty? A: If a terrible event happens like 9/11, we could go towards that direction. However, based on the current knowledge of global understating, be it Fed rate hike, be it China crashing, be it European Union going into trouble again, I think we are unlikely to visit that low. This Budget has laid out a kind of righteous path of fiscal prudence. We have many limitations in our economy and our markets but this one path of fiscal prudence can cover many of our limitations. It creates room for lower inflation, it leaves more money in the hand of banking system to lend to private borrower, it can help RBI to cut interest rates, it can reassure foreign institutional investors (FII) to bring more money into our country, it can result into rating upgrade if we negotiate well with the global rating agencies and more importantly, we have seen between 2003 to 2008 where earnings went up by about little more than two times, the market went up a little more than seven times because of the PE rerating. There were many factors for that PE rerating but one of them was the consistent and constant reduction in fiscal deficit. So, this path of fiscal prudence will ensure that unless and until a very terrible event happens we are unlikely to go down to 6,800 levels.Latha: You were speaking about the fiscal prudence, do you think that fiscal prudence could be under threat now that crude prices are rising? A: Fiscal prudence will be a balancing factor. Yes, there could be a little bit pressure because of the crude price rise. There is also a pressure because there seems to be little bit overestimation in terms of non-tax receipts especially related to spectrum sale but at the same time there are cushion available in terms of your estimate of taxes from disputed tax settlement or income disclosure scheme. At the end of the day, no company which is managing a small portion is able to move in-line with the Budget. They also give a range and try to move around it. So, in the Budget, yes, there will be some challenges as we move forward but one thing which has been done in the Budget which is exceptionally good is the asset monetisation scheme. If we see the track record of India’s divestment till now, we have never ever achieved our stated budgeted number irrespective of whether the market is in a bull phase or a bear phase. This is partially because of our lack of initiatives for strategic divestment and only following market divestment. However, in asset monetisation scheme, we will be able to offer running assets like road, power project or certain other infrastructure project to foreign investors who may find it very difficult to come and setup a project in India, but may find it manageable to operate an existing and running plant. In a world where negative interest rates are prevailing in major parts of economy, such an innovative project of a road or a power sector on India credit might be a welcoming sign. So, whatever is the pressure building up on revenue side, could be negated, could be neutralised if we follow this path of asset monetisation as proposed in the Budget. Sonia: Since it is International Women’s Day today and we have established the fact that a couple of industries like banks and media have the dominance of women, it is sad that as far as stock markets are concerned, women lack confidence a bit when it comes to investing, financial literacy, compared to men. What would your advice be to a lot of the women investors who are watching you right now, what should be the best strategy to adopt in 2016?A: My advice to them will be to use their brain. Genetically they are good at multitasking. Have you ever seen a man in the morning ensuring that their kids go to school, prepare the breakfast, clean the house and do all kinds of multitasking? Only women are capable of doing it. So don’t rely on others, use your judgment in processing multiple information and pickup good stocks. In fact things which you are buying if you pickup stocks of that company, I am sure you will make lots of money. So, just go buy your judgment, don’t listen to your husbands; they are not good at investing.