Navigating #LokSabhaElections2019 with Nilesh Shah
In this Q&A with Outlook Business, market veteran Nilesh Shah of Kotak Mahindra AMC talks about the current market, the impact of Elections 2019 and why he prefers to look at individual stocks than a particular sector. For investing insights, follow @outlookbusiness (https://twitter.com/outlookbusiness ) and log on to https://www.outlookbusiness.com/
#LokSabhaElections2019 #NileshShah #Business #OutlookBusiness #OutlookMagazine #OutlookGroup
#LokSabhaElections2019 #NileshShah #Business #OutlookBusiness #OutlookMagazine #OutlookGroup
Category
đź—ž
NewsTranscript
00:00 The sectors on which we think over longer period of time we can make money are essentially
00:14 sectors which are following characteristics.
00:18 One it is the companies which make money and not the sector.
00:23 In sector one company can give great return, other company can still destroy your capital.
00:29 So we are looking at companies rather than sectors.
00:33 The first thing is that this company should make more return on capital than its cost
00:38 of capital.
00:39 In simple terms it should pay you more by way of dividend than asking you more by way
00:44 of capital.
00:46 Because unless and until company is earning more than its cost of capital how will you
00:49 as an investor make money.
00:52 The second thing about this company is growth.
00:55 The company should have reasonable safeguards to ensure that its growth will be there for
01:00 years to come.
01:02 If it does not have any competitive advantage then growth can't be taken for granted.
01:07 So we want to invest in companies which are generating more return than their cost of
01:12 capital and where we have reasonable clarity that this thing will sustain.
01:19 Those are the characteristics which gives us to invest into these companies.
01:27 So effectively if you see in the recent time auto sales number, consumer staple, consumer
01:33 durable goods sales number, they all have come little bit subdued.
01:38 We are not talking about negative growth but we are talking about lower growth than what
01:43 was expected by the market.
01:46 Now despite this markets are holding up.
01:49 That means market have priced certain things which gives them the comfort that notwithstanding
01:55 the current little slow patch things will look better in the future.
02:00 I think market is discounting couple of things.
02:03 One there will be stable government post election.
02:06 Second that government will continue the path of fiscal prudence, no deficit spending.
02:12 And we will have series of rate cuts which will rationalize up on our real interest rates.
02:20 The market is also factoring in improvement in banking liquidity so that credit flow can
02:25 reach to sectors like small and medium enterprises, real estate.
02:31 Market is also looking at better transmission through mechanisms like NBFCs and PCA based
02:37 PSU banks.
02:39 And more importantly market is also looking at reduction in trade deficit with China which
02:44 has put pressure on our small and medium enterprises.
02:47 So market today is driven by bit of hope that all these things will be followed on over
02:54 next 6-12 months which will help earnings recover.
02:57 The biggest risk which market is facing is the earnings revival.
03:02 For last 5 years earnings growth has been muted and it is muted because we have been
03:10 cleaning up banking NPAs.
03:11 We have introduced better tax compliance through GST.
03:16 Now all these things should result into better earnings growth in the days to come.
03:22 So there will be factors like oil which are beyond our control.
03:26 But definitely there are factors which support or which are within our control which can
03:31 improve earnings.
03:32 If earnings improve, generally markets tend to remain upwards.
03:40 Market are not necessarily good predictor of election.
03:45 In 2004 as well as 2009 market was not right about predicting election result.
03:51 2014 it was lucky.
03:54 Broadly any market always wants a stable government which is committed to economic reforms.
04:00 And it tries to arrive at that decision based on opinion polls, based on surveys, based
04:06 on satta bachar and so on and so forth.
04:09 The current mood in the market is that there will be a stable government post election.
04:14 They will continue the work of economic reforms.
04:18 If we get that kind of government I think markets will be reasonable.
04:23 If we get a shock where we have a very coalition government, a khichdi sarkar, where the economic
04:30 reforms are not given priority, then markets could see a correction.
04:35 So if we get a coalition government where economic policies are not priority, then small
04:45 cap sectors will be at risk.
04:48 Some of the high beta sectors like capital, goods, infrastructure, construction will be
04:53 at the risk.
04:55 On the other hand defensive sectors like IT, FMCG, pharma will fall probably little less.
05:03 However on the other hand if we get a stable government which is committed to economic
05:07 reforms and which carry forward the economic reforms work, then reverse will happen.
05:14 IT, pharma, FMCG kind of defensive sectors will not move up, whereas high beta sectors
05:22 like small cap, capital, goods, infrastructure, real estate, construction will move further
05:28 up.
05:29 But my recommendation to investors is don't play for something which is not in our control.
05:35 Whether we will get stable government or not, it is not in our control.
05:40 We should focus on buying good companies which are run by good managers for a longer period
05:45 of time.
05:47 For last so many years we have seen elections go and pass, but the market has continued
05:53 to reward those investors who have done long term investment.
05:58 ďż˝
05:59 (dramatic music)
06:02 [Music]