“In those days, when Sunil Gavaskar used to get out, the hopes on rest of the batsmen was very-very low. Today, barring India, most other countries in emerging market like Russia, China, Brazil, South Africa, have not delivered return to investors. Over 20-year period, emerging markets underperformed developed markets,” says Nilesh Shah, MD, Kotak AMC.

Exactly a month ago, this market had a lot of event risk, budget, Trump and tariffs, then there was RBI, MPC, and then Delhi elections. Thankfully for us, we have come on the right side of all the individual events. So, if events were making markets nervous and if the events are behind us and we have been on the right side of the event, then do you think it is a matter of time markets will stabilise?
Nilesh Shah: So, in our opinion, while there are certain events which are behind us, there are few things which will keep market on the volatile side. One, we are in a world which is increasingly becoming protectionist from globalised, with Trump administration launching newer and newer initiatives for America first, there will be concerns on geopolitical side.If that event risk is not enough, we are also seeing consistent selling from FPI. There is ghar waapsi of global capital to US.

We saw one of a large private equity fund going and meeting President Trump and saying that you had asked me to bring $100 billion, here I am bringing $500 billion. Clearly, America first policy and higher interest rates, as well as high bond yields is pushing capital back to America. And finally, emerging market today is like 1980s Indian cricket team.

In those days, when Sunil Gavaskar used to get out, the hopes on rest of the batsmen was very-very low. Today, barring India, most other countries in emerging market like Russia, China, Brazil, South Africa, have not delivered return to investors. Over 20-year period, emerging markets underperformed developed markets.

So, there is quit emerging market movement also happening. So, in our opinion, markets are likely to remain volatile over near to medium term, based on the geopolitical risk, and also the flows.

Like the way you said looks like there is a ghar waapsi when you talk about the FII flows going into the United States. What should investors back home do? Should they look at sectors where the valuation is at comfort at this point in time, most of them talk about banks, that is also where you have a lot of FII positioning?
Nilesh Shah: So, for all along, we have always said maintain your asset allocation, do not invest looking at past performance. This is time to invest in quality over momentum. Pick reasonable valuation over expensive valuation, as price is what you pay and value is what you get.

And stay away from low floating stock counters where we believe froth is still there despite hefty correction. From a sectoral point of view, midcap IT companies leveraging AI to deliver cheaper, better, and faster solutions to their customer, private banks and NBFCs which are not overexposed to unsecured lending.

On a portfolio basis, pharmaceutical sector which does get some benefits of a rupee depreciation and telecom where there is hope of some price revision flowing into bottom line, these are some of the stocks which provide good opportunity.

Thanks to the budget, giving one lakh crore tax bonanza, tax rebate to middle income taxpayers on a recurring basis we think consumer discretionary space will do better. This set of people are unlikely to spend money on roti, kapda, makan or basic necessities, consumer staple, they are more likely to spend this money on consumer discretionary like travel and tourism, consumer durables, healthcare, education.

So, consumer discretionary space, thanks to the budget, looks interesting as this tax rebate is on a recurring basis.

You spoke about the ghar waapsi, you spoke about money moving back into US. But at some point in time, there would be concerns which would be raised on this entire how long comeback America trade would continue. Just like FIIs have raised concerns about India valuations, I am sure somewhere this entire comeback to America, America great trade will get challenged, I mean, that is how markets are.
Nilesh Shah: Undoubtedly. Today, if we look at on a 15-year basis, American market return vis-a-vis emerging market return as an asset class is at the lowest point. US has massively outperformed, emerging markets have massively underperformed. And this is a cycle. There is a decade where emerging market does well, there is a decade where US does well.

So, clearly, from a valuation point of view smart money will start looking at emerging market. Number two, India, even within emerging market can make a separate case.

Undoubtedly, India is expensive on a one-year basis, though that valuation in largecap has already corrected and FPIs have been seller in largecap in last quarter, but buyers in small and midcap which apparently are more expensive.

So, if valuation was the concern for FPIs, they should be buyer in largecap and seller in small and midcap. But they have done exactly opposite. So, limited point is that yes, market is like a pendulum, on fear it moves in one trajectory, on greed it moves in another trajectory.

Today, money is flowing to US because of Trump administration. But at some point of time, US markets outperformance valuation over the emerging market will reverse the trend.

One of your peers said that do not start a sip in smallcap stocks. I read it three times so that I am not getting it wrong. Is there merit in thinking like this?
Nilesh Shah: So, there was a one very great Indian player who was not so great as a captain. And one of the junior player explained the reason why he could not become a great captain because he will come out and say, on this pitch you have to play this kind of shot and he will also show and demonstrate how to hit. But he forgot that he is a greatest batsman, the others are not. So, what was very natural to him did not really work for others.

Now, in India, we have different kinds of investors. There is a set of investors who during March 20 leapt up the opportunity and topped up SIP and lump sum. Now, for those people, they know how to time the market. Fair enough. If you want to take some money out, be my guest.

But there are people who did not do anything. They just remain invested. For those people who are not likely to time the market, who would not have ability to invest when markets have corrected, they should continue their SIP.
There was a fund launched by ICICI Prudential Mutual Fund itself in 2000, where Rs 10 NAV became Rs 2, 80% down. What is the compounded annualised return even if you had invested at Rs 10 after taking 80% hit, about 13%.

So, if you can time the market, if you can play the shot, go ahead and play the shot. But if you cannot time the market, then please follow the dharma of asset allocation. It is difficult to predict market. On this show, I have said so many times that SME index looks expensive.

Over the last 10 years, it is the best performing index. By listening to us, you have lost opportunity to make money. You have lost opportunity to make money for the lifetime. Now, markets can remain irrational more than you can remain solvent.