“The market going forward is a boxing ring. You must stay in the ring to win the game and in the process be ready to take one or two knocks,” he said, pointing to the chance that the recent run-up may result in intermittent corrections along the way as the market heads higher over the long term.
Below is the verbatim transcript of Nilesh Shah’s interview to Surabhi Upadhyay on CNBC-TV18.
Q: Are you comfortable deploying more money in the market right now. Would you advise investors to buy even at current level?
A: Yes, but I will remind investors that the market going forward is a boxing ring. You must stay in the ring to win the game and in the process be ready to take one or two knocks.
Today, there is Triveni Sangam in the Indian market. First leg is liquidity –demand for equity is more than supply. The divestment supply, the IPO pressure has not yet begun and the demand from domestic investors as well global investors thus pushing prices higher.
The difference is that this liquidity is not greed liquidity or liquidity for hope. Because sentiment has improved with record foreign direct investment, GST bill has passed, monsoon, after two below average ones, is turning out to be just about average. And finally this liquidity is hoping that earnings growth will come.
For last three years, we haven’t seen significant earnings growth. There is hope that with interest rate coming down and liquidity getting enhanced in the banking system, consumption demand will recover based on monsoon and Seventh Pay Commission. We will see other than an investment related companies, investment related cyclical companies, rest of the economy showing earnings growth.
That’s where one can invest with a longer term horizon. Don’t expect what happened in the last 6 months (the stock price rally) will happen in next 6 months, unless until some miracle happens, but if you have a 3 year horizon certainly this is the time to invest in market.
Q: The fact that the presidential assent for the GST Bill had to come through was only procedural in nature but could this be some more sort of a sentimental positive for the market? Also how are you playing the GST story if at all you are? What is it that you would buy if you were to carry this forward?
A: There was no doubt about GST getting passed with so much support from the states. Now what we need is what will be revenue neutral rate? The government has been indicating it is about 22 percent. The industrialists have been indicating about 18 percent.
In excise we have more than 65 schedules with differential rates for different items, this all has to be bridged into 4 or 5 categories. So, before I can take an investment decision, I need to see what is the revenue neutral rate, how items are classified.
On a broad basis on can say that as we become one nation, one market clearly logistics cost will fall. So, logistics related companies will do well.
However, that is already priced in. We will also see some of the higher taxed paying sectors like automobiles, media, entertainment probably benefit because their taxation rate will come down. On the other hand some other sectors where taxation rates are low probably will suffer if taxation rates indeed goes up. We need to get to the nuts and bolts and nitigrities of GST before taking that call.
Q: At these heady levels if you were to buy something fresh what would it be and how do you look at the massive drubbing that telecom is receiving for obvious reasons and the fact that the biggest IT companies in this country are now sounding very cautious on their bread and butter business?
A: On the telecom side, there is one nice Gujarati saying that when elephants are dancing its far better to watch from outside rather than inside the ring. There are many other sectors and many other companies, which are available today. I am sure that some point of time telecom stocks will bottom out and provide great opportunity, but let the clarity come before one can enter.
On the technology side, clearly we are in a massive transition many of Indian IT companies were focussed on low end of the work in terms of providing manpower for doing application related work in infrastructure management related work. Many of the companies have made a small beginning from this into consulting side, into product side, into gaming side, into digital space.
Now this pot albeit growing at a faster pace, but the base is so small that it is not materially impacting the market capitalisation. I think for the time being it’s time to be underweight technology sector and then search for that company, which will be able to make an impact in digital space, products space, consulting space, gaming space. You will get your investment in that transition, but for the time being it time to be underweight technology space.