A cocktail of bad news in the form of inflation, the Russo-Ukraine war, rising crude oil prices and the US Federal Reserve raising rates has stunned markets globally. Mint asked a panel of experts whether this is a market for buyers or sellers. Dalal Street appointed Shankar Sharma, Vice-Chairman and Managing Director (MD), First Global; Nilesh Shah, Group Chairman and MD, Kotak Mahindra Mutual Fund; Deepak Shenoy, Founder and CEO, CapitalMind; Nikhil Kamath, Co-Founder, Zerodha; Selling by foreign investors, had to say about opportunities in this market and ways to make money. Edited part.
Will the improvement last?
Kamato: Indian markets seem expensive and even today on a comparative basis we have improved less compared to other countries. Generally, in a market cycle, things get a lot worse before they get better. Over the next two years, there will be more pain and the pain will last longer.
Shah: Much will depend on how the various global events take shape. What if tomorrow there is a political solution to the Ukraine-Russia war, and oil prices come down. In that scenario, certainly, the market outlook will be brighter.
Shenoy: I am very bullish for the long term, but I don’t think so right now, (the market situation) is very good. Additional liquidity is almost reduced 5 trillion in the Indian economy. In such a situation, you can be bullish on the economy, but the markets will not perform accordingly as liquidity is what drives the market.
Is India in a better position?
SharmaOur debt-to-GDP and twin deficit are on a very worrying path. And it can only get worse from here, given where the rupee is headed, which I think will depreciate sharply. India is the least worst option for an investor who can invest globally.
Kamato: We have three or four big issues. The trade deficit has been a problem, and is becoming a bigger issue ever since the rise in crude oil and commodity prices. I don’t think it will take long for India to run out of stock. Inflation and general recession are other issues.
Shah: We are in a much better position than other countries despite the current challenges.
Can DII cover FPI/FII sales?
Shah: FPIs continue to play an important role in our market; We need to simultaneously raise domestic and global capital to drive higher growth.
Shenoy: The retail investor continues to drive the trading volume in the market. We have not yet seen liquidation levels of sell-offs from foreign investors. If that happens, we’ll really see if the home players are able to offset that in any meaningful way.
SharmaFIIs are running out of stock from where they can exit. Interestingly, they are precisely the kind of stocks that investors should not buy because they are actually overvalued stocks (for example, banks).
Are there any pockets of opportunities in India?
Sharma: The under-owned part of the market by FIIs is actually the smallest cap part of the market. We are in a bear market where you have to work hard to reach those 25-50 small-cap companies. In my view, a year from now, many of those companies will rise significantly.
Kamato: Small cap companies also keep less moat around them. They are generally not sitting on a lot of liquidity and are slightly more leveraged than large-cap companies. If the market drops by another 20%, I wouldn’t be surprised if small cap companies are more stressed than large companies that have a bigger gap instead.
Can Asset Allocation Help Investors?
ShahAsset Allocation Funds: If you are an investor looking for a long-term investment, asset allocation funds are more like ‘fill it, close it and forget it’. This ensures that in a cheap market, you are adding asset classes and in an expensive market, you are making profits.
How can investors make money in the long term?
KamatoIn the future, we may reach a point where development comes at a cost where we need to justify the cost to the environment.
Sharma: I still believe we are in a bear market. If you look at the compounded returns from January 2008 till now, we are still barely in the 8-9% zone, which is nothing for a high interest rate economy like India. So, to that extent, we are better off because the things that do best work the worst in a bear market. So I think on a relative basis, India (China also) is the best market that I can see.
Shenoy: I would say that India has a lot of inefficiencies. All of these inefficiencies, whether in logistics, transportation, or communications, will be broken during the next decade, either through technology or by a new or existing company.
Shah: Previously, our growth was driven by big entrepreneurs. Now there is availability of capital for worthy consideration. This will develop the entrepreneurial spirit. Long live the faith in India’s story. So, my recommendation is ‘Have faith: do SIP, be cool’.