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Kotak Mutual Fund

The halcyon sea of Indian markets suddenly turned stormy for many novice traders and investors since mid-October. But instead of experiencing a Titanic moment, Indian markets have barely budged. A correction of 7%-8% from the top doesn’t really mean much considering the relentless selling by Foreign Portfolio Investors (FPIs).

In March and April 2020, FPIs had sold Rs 69,000 crore of Indian equities on an aggregate basis. And what happened thereafter is a much-discussed history now. This time the quantum of outflows has been higher.

The clouds of uncertainty are casting shadows over the markets at present. And to offer clarity to our readers, we invited Nilesh Shah, Group President & Managing Director—Kotak AMC, to share his perspective on the present market conditions.

As you know, there are too many moving parts to the market at present—rising inflation in the developed world, potential rate hikes and the rollback of stimulus in the US, rising oil prices and geopolitical tensions to name a few. Can Indian markets survive this difficult phase?

Here’re some highlights of our conversation with Nilesh Shah

Nilesh Shah on markets

  • Markets are likely to remain range-bound in 2022
  • At the current levels, Nifty 50 is valued at ~20 times FY23 earnings which is about 10% higher than the historical average
  • Every dip will be a buying opportunity going forward
  • That said, markets are unlikely to repeat their performance of 2020 and 2021; so, the return expectation should be realistic

On FPI flows

  • Unlike the exodus at the onset of the pandemic in March 2020, FPI selling is more calibrated this time
  • FPIs seem to be placing limit orders; they aren’t aggressive sellers at lower prices
  • FPIs are likely to be net buyers in 2022 (if you read carefully, this is a big statement)

On the geopolitical situation

  • A full-blown war between Russia and Ukraine looks unlikely at this juncture
  • Any unexpected outcome may have a bearing on the global financial markets

On sectoral trends

  • Capital Goods, real estate, infrastructure and pharma may outperform
  • Largecaps may outdo mid and small caps
  • Positive on banks selectively
  • Customer acquisition, retention will be crucial for banks and those embracing digital trends would be at the forefront
  • Largecap IT space may outperform midcap ITs and even the broader markets
  • Wage inflation in the IT sector isn’t a concern just yet and companies are likely to maintain margins over the medium to long term
  • Wage growth at the entry level is likely to outpace the growth at the top of the pyramid in the IT sector
  • Valuations in the midcap IT space are running ahead of fundamentals in many cases
  • Valuations in pharma are turning attractive
  • Indian pharma sector has a unique positioning in the global markets—quality manufacturing at affordable costs
  • China plus one and Atmanirbhar Bharat strategies to drive growth in the manufacturing sector
  • Value-addition approach is crucial to maximizing export opportunities

On Budget 2022

  • The Budget 2022-23 has been a transient and a conservative budget
  • If the last budget offered fish to Indians; this budget nudged them towards fishing
  • Government’s infra push will create a conducive environment for entrepreneurs to grow their businesses and create jobs
  • Government revenue may exceed expectations in FY22 as well as FY23
  • Execution remains the key though

And we couldn’t let him go without asking for his view on the LIC IPO…

  • LIC IPO is unlikely to follow the footsteps of Coal India or IRCTC either
  • Pricing and positioning are the key for the potential success of LIC IPO
  • Since the government is diluting only 5% for now, the pace of further divestment will be crucial
  • Huge supply at regular intervals might be a value-dampener

He ended the conversation suggesting that if LIC IPO recreates the Maruti moment of 2003, retail participation may become a dominant force for Indian markets going forward.

Quick recall: After the dotcom bust, the markets experienced a challenging phase between 2000 and 2003. However, the positive momentum created by the strong listing of Maruti Suzuki in 2003 was a decisive factor for the return of bulls on Dalal Street.

Will LIC create a déjà vu moment? Do let us know what you think.

You may also like to read: 5 things that make the LIC IPO an interesting proposition




The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities.

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We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.

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