Nilesh Shah | market strategy: India will now get more attention from global investors: Nilesh Shah

How should one look at this fall? Is there a change in the India story? Is it a much needed fall and Fed policy or geopolitics or crude oil price just an excuse?
I do not think this is a pause or a U-turn on the India growth story. If at all, it is actually an acceleration for India’s growth story over a long period of time. Long back, there was BRICS – Brazil, Russia, India, China and South Africa. Today Russia, Brazil and South Africa are way behind India and China is also behind India. With these events, India gets even higher attention in global investors’ radar.

Second, markets are markets, they will go up and down. Yesterday, they were down on FII selling. Today they are up because global markets have recovered. So in the near term, news on war will continue to impact our market. But we believe our fundamental story is intact. Of course, it gets adversely impacted by higher energy prices. We import about 4 million barrels of oil a day. A $10 price increase is $40 million outflow from our pocket. But our long-term story remains intact. Elevated energy prices create a dent which we can afford.

Does anything change for SIP investors and should anything change at all because they are in the market for the long haul? They should not be giving into the panic?
Undoubtedly and it is the experience of March, April, May and June 2020. SIP investors today still have positive returns on a three-year, five-year, seven-year, ten-year basis and reasonably good double digit positive return.

But in March, April, May, June 2020, three-year returns were negative, five-year returns were lower than the saving bank account return and ten years returns were down 50% to become comparable to bank fixed deposit returns. People who did not do anything and continued their SIP today are enjoying the fruits of double digit returns. People who panicked and ended up stopping their SIPs lost a great opportunity to make money. People who panicked and redeemed their SIPs converted their notional loss into actual loss.

The smartest were those guys who topped up their SIPs when SIP returns were negative. My recommendation is that please follow the dharma of asset allocation, continue your SIP. Yes three months SIP returns might be negative but you have not come here for three months. You have come here for five years and ten years. Please maintain dharma of your asset allocation.

Should one tweak the portfolio in times like these and give a higher allocation to large caps and safer assets in that sense?
Undoubtedly, one has to play the ball on its merit. One cannot go predetermined that I will always play on the front foot. One has to tweak the portfolio and that is what active fund management is all about. But if one has invested with a fund manager, then he will do the tweaking. One should focus on asset allocation.

Second, the tweaking happens on a medium to long term basis. It cannot happen on a daily basis. So if one is an active fund manager, process all the information and if your fundamental view changes over a medium to long term, then do the tweakings. If one is an active investor, of course, one has to make the tweakings but do not try to tweak, based on every day price movement. One will end up catching one’s tail.

What would be your outlook when it comes to the banking sector? Prashant Jain believes that the re-rating in banks may be delayed. Would you concur?
Within banking and financial services, I believe there will be a differentiator. There will be one set of banks where credit standards are reasonable and other set of banks where credit standards are not reasonable. Today fortunately there is a lot of convergence on the NPA cycle as the worst seems to be behind us.

The second differentiator will come in terms of use of technology and owning customer. There are many banks which are using data analytics and employing technology to get connected to owning the customers. There are many banks where customers are not owned or extracted appropriately in terms of products, in terms of relationships.

The third differentiator will be the valuation. Now as the business model of most banks geared towards retail, towards large corporate loans, towards conservative credit, the valuation differential has also come into play. We believe there are few private sector banks and one or two public sector banks which need to be invested from a longer term point of view. Also keep in mind, NPA recovery is happening in many banks and hence their quarterly numbers for at least FY23 will be way better and way ahead than last year.

Do banks fit into that basket or do you continue to maintain that they are a bit of a trading play vis-à-vis a long term investment bet?
We believe select banks are a long-term investment bet. They are compounders. Some of the banks where you may see a very large increase in profitability thanks to the NPA cycle reversal can probably take a trading a bet. But please remember, trading is always injurious to an ordinary investor’s health.