Focus on our country, our fundamentals, our stocks
Nilesh Shah, MD, Kotak AMC
Sep 23, 2016 | Source: Economic Times
Indian markets fundamentally strong: Is the Indian market running little bit ahead of its fundamentals? The answer is yes. If there is a steep correction in Indian market because of some global volatility like it happened in October 2008, I think it will be temporary. It will be short term and markets will bounce back very quickly after that uncertainty or volatility is over. It does not mean that we cannot have correction in this market. Certainly there could be correction, but there would not be deep, they would not be lasting.
View on Bank of Japan’s action: The Bank of Japan after providing liquidity, after keeping interest rates in negative for years, ran up debt to the extent of 250% of GDP. After Bank of Japan becoming a significant owner in majority of Japanese stocks, now they are going into a territory where they are saying that will continue to buy government securities in a manner so that the yield curve will be as per our requirement, yield curve will be as per our need. Now these are all uncharted territory. This is where central bank probably gives a put option to the equity market. Where will this end who knows but till such time it is continuing, you have no option but to remain participant in the equity market, otherwise you will end up a significant part of rally.
View on U.S Fed action : On the US Fed side also, as child we were always reading that story of tiger coming, tiger coming, tiger coming, in December 2015 while raising US Fed rate after a decade, they indicated four rate hikes in 2016. Now, it will be just about one. So, clearly they also are getting data dependent, they also are trying to give put option to the equity markets to sustain growth. Probably, future of America is what the past of Japan is. So my request to viewers will be do not really go by the wildest predictions, do not really go by the extreme forecast that is unlikely to happen. Let us focus on our country, our fundamentals, our stocks. Over last 25 years, we have created enough value and if you pick up stocks rightly with right temperament and you can withstand volatility which might come on the way, I am sure you will end up making more money than most other asset classes in Indian equity market.
For Stock investor is it too late to enter or there are still opportunity in the market : I think for the stock investors even today in this market there are opportunities to buy stocks now whether they are fully priced or fairly priced. There is value as a stock picker. You can start buying stocks even in today's market. Of course your rate of expected return will be lower than what if markets correct 10-15% but if you are a stock picker you have no option but to pick up stocks depending upon your time horizon.
Now if you are not a stock picker, there is a very simple common sense technique of asset allocation. Today's fair value of market have neutral allocation to equity if your risk profile is not very aggressive. Within that risk profile if there is a correction, you can always increase your allocation to equity. No one says that being a stock investor, you have to put 100% of your net worth in stock market. If there is correction, you can always shift some allocation from debt and other portions into stock market.