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Nilesh Shah, Kotak AMC
Jan 20, 2017 | Source: ET Now
Markets over next 12 months: Today in the market, we are seeing a battle between optimists and the pessimists. The optimist is saying that in the long term demonetisation and GST will create a lot of earnings potential for listed market. They are saying that the money which was lying in tjori is being moved to deposits that will increase the multiplier effect. It will allow Indian banks to lend additional credit to economy and as credit to GDP ratio improves, the GDP growth will accelerate and earnings will flow to corporate. This battle between optimist and pessimist is going to determine what happens to the equity market. On top of it, we also have certain events which are going to impact the shape of the equity markets.
The ideal strategy to invest: Investors need to be agnostic to large, mid or small cap. We believe there is one big theme which is playing out courtesy demonetisation and GST that is un-organised sector losing market share in favour of organised sector. We are seeing this across sectors like textiles, garments, electrical appliances, lighting, tiles, paints, chemicals. In all these places organised sectors are gaining market share from unorganised sector. Now if investors can capture this theme in their investment across large, mid and small cap, they will be able to make money.
Earnings rebound: Clearly, we had a scenario where one side of market was not giving earnings growth but the other side of market was still delivering 15-20% earnings growth. In fact before demonetisation when we look at the results of September 2016 half year bearing if you remove four banks who had to provide for NPAs out of Nifty then the rest of the 46 companies delivered double digit earnings growth of almost 16% YoY. So earnings growth is happening in pockets and that is where you should be investing into.
Hypothesis for the next three years in terms of the potential returns the market can generate: From a broad economy and market point of view, we need multiplier effect to play out. We had 17.75 lakh crore of currency in circulation let us assume that of that 5 lakh crore was lying in tijoris for variety of reasons. They were part of the parallel economy, now if that 5 lakh crore moves from tijori to bank accounts over next 24 months, we can create a multiplier effect of 25 lakh crore plus. That will mean additional housing loans, additional auto loans, additional working capital financing that credit going into economy will create its own earnings growth for corporate India and that will pull the market up. So we need multiplier effect of demonetisation to play out in the economy to create momentum of earnings in the market.
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