Follow the dharma of asset allocation to survive an uncertain market: Nilesh Shah

Dalal Street investors have been on a roller-coaster ride amid inflation concerns and unabated selling by foreign institutional investors.Nilesh Shah, Managing Director of Kotak Mahindra Asset Management, says that the market is seeing a very interesting tug of war between optimists and pessimists.

In the Russia-Ukraine situation, the optimist believes that there will be some political solution as Russia can’t be ignored and placed under sanctions but the pessimist is saying that there will be a further escalation and this could even lead to higher fatalities, Shah said in an interview with

Sharing his outlook, he said that this is the market where valuations are fair and are in line with the historical average valuation. Investors should maintain neutral or equal weight asset allocation.

“There might be a further correction in the market if the events don’t turn out as expected by the optimizers. Don’t rush, buy in one go, and average at that point in time,” he added.

“We don’t have the ability to say which way markets will go. Be a long-term investor and follow the ‘dharma’ of asset allocation,” the veteran asset manager said.

Talking about earnings, he said it is now dominated by commodities and cyclical companies. “Currently, many companies are not able to pass the price rise to the consumers. For the June 2022 quarter, the topline will be higher due to inflationary pressures but margins will get squeezed. We maintain Rs 825-875 EPS for Nifty50 companies in FY23,” he said.

“The quality of earnings is changing. Earlier, earnings were dominated by IT, pharma, banking, and financial services but now it is dominated by commodities and cyclical companies like metals. You will have to not only look at the quality of earnings but also the quantum of earnings and with this uncertainty, it is a bit difficult to say which way it will go,” he added.

Shah also gave a few inspiring examples to motivate the young and new stock market investors on Dalal Street. “I still vividly remember Anil Kumble wearing a plaster and balling to Brian Lara despite being hit by a fast bowler. He had a fracture in his jaw but he ended up taking the wicket of Brian Lara in the end. Something similar also happened with Sachin Tendulkar as well,” Shah highlighted.

“Likewise, investors have to suffer losses in the markets as well. Bull and bear markets are part of the investment journey. Don’t worry about the temporary losses and continue investing,” he added.

The market veteran also highlighted that India is trading at a significant premium to its peer group. “We are probably twice more expensive than China, twice more expensive than Brazil, twice more expensive than South Africa and infinitely expensive to Russia as their markets have corrected. Our ESG ranking, governance standards, environmental and social consciousness is significantly better than our peer group. So we will trade at a premium but sustaining today’s premium over the emerging market looks a bit doubtful,” he said.

He further added that FII outflows are likely to continue and the near-term uncertainties are pushing people to take the profit out of India. However, Shah also believes that India is a
‘lami race ka ghoda’,

The seasoned expert is bullish on sectors like largecap IT, industrial and engineering, banking and financial services. “However, we are avoiding stocks trading on expensive and very cheap valuations. Primarily, we are investing in companies that are trading at a reasonable valuation,” Shah added

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