Nilesh Shah: Bullish on this big emerging theme for next 12 months: Nilesh Shah, Kotak AMC


If we are lucky, sensible and are planning for future, then Samvat 2075 returns could be reasonably good, Nilesh Shah, MD,

Kotak AMC, tells ET Now. Shah is betting big on opportunities arising out of US-China tariff war.

Edited excerpts:

What do you think the next Samvat is likely to be? Is it going to be better than this year?


We need to be lucky, sensible and planning for the next Samvat.

Luck in the form of lower oil prices. If oil price goes higher from current level, it could have impact on next Samvat’s return. But if oil price drops from current level, then next Samvat will certainly be more prosperous.

In terms of sensibility, we have to vote for a government which is stable and committed to economic reforms. If we indeed get a stable government with economic reforms as an agenda, next Samvat will be prosperous. If we get a coalition government not committed to economic reforms, then next Samvat’s returns will be impacted.

The third factor is that we have to plan for future. Today morning MSCI has announced that A share indices weightage will increase from 5% to 20% in MSCI EM indices. From MSCI emerging market indices, it is going to become MSCI China and other market indices. As China’s weight jumps from 28% to 50%, India’s weight will correspondingly come down and FIIs’ allocation to India will also start dwindling.

If we do not take any corrective action, there could be potential outflow of almost $100 billion over next couple of years.

We must plan and take corrective action so that China’s weight increases do not affect India’s weight disproportionately. So, if we are lucky, sensible and are planning for future, then next Samvat’s return could be reasonably good.

Diwali is also occasion to start new things. We have been championing the cause of SIPs. But if you have taken your first step towards SIP 12 or 15 months ago, it has not been a very gratifying experience.


Definitely compared to last Samvat, valuations have corrected this Samvat. On 16th January 2018, BSE small cap index was trading at 33% premium to its 10-year historical price to book average. Today it is trading at 4% discount. What was available at a premium is now available at a discount. What was available on regular price is now available at reasonable price. It makes sense for investors to start investment in equity. More importantly, since I said there are events like oil, election and MSCI emerging market indices, it makes sense to invest on an SIP basis rather than on a lump sum basis.

Returns follow flows in the mutual fund business. Would Indian domestic investors continue to invest despite low returns ?


Indian investor maturity has come of age. Over last 25 years, they have seen various downturns in the market and one message is very clear, if you continue doing your SIP, eventually your returns are good. Their persistency has paid off. Credit should go to thousands of distributors and advisors who have been reaching out to their customers.

In this Diwali season, I am seeing many of my mutual fund distributor friends reaching out to their clients and convincing and cajoling them to continue their SIP. This combination of investor maturity and great work done by mutual fund distributors is resulting in stronger flows into domestic mutual funds.

Which is that one sectoral bet that you will take for the next 12 months?


One big theme is emerging. There is a tariff war going on between the US and China. Many companies have manufacturing plants in China and because of imposition of tariff by United States of America, they are finding it difficult to export goods to America. Those are the sectors, those are the opportunities where Indian companies can make an inroad.

There was an article by The Economist which talked about computers going to Taiwan, electronics going to Thailand and Malaysia, clothing going to Bangladesh, food processing going to Vietnam and footwear going to Cambodia. In India, we make footwear, clothing, we do process food to feed 1.3 billion people. We can also make some electronics and we can also make some computers. Amazon and Wal-Mart, the two largest buyers of Chinese goods are present in India, not in China. Clearly if we work with that ecosystem, this disruption of supply chain management through US imposition of tariff can create a huge opportunity for Indian companies. We are thinking this is the Y2K opportunity for Indian IT company equivalent. If we capture this supply chain disruption, the companies will become manufacturers to the world and that growth will be superlative. We are trying to find out which are the companies which are trying to take advantage of this tariff war.

What advice would you give to viewers on asset allocation and disciplined investing? Would you say that is the key for wealth creation irrespective of what the market is up to?


I would advise investors to be disciplined. Wealth creation can happen through long-term, regular investment and asset allocation and it requires discipline. One has to have discipline to stay invested for long term, discipline to ignore market volatility and discipline to continue doing regular investments even when returns are moderate or negative.

Most importantly, balance your fear and greed. I pray to Laxmi Mata that all Indians become wealthy and prosperous following this time tested principles. In terms of allocation to equity, one has to take a call based on individual risk profile and investment objective. There is no one standard fit all for a person but the thumb rule is that 100 minus your age is your allocation to risk assets and risk assets include equity.

Go and consult appropriate financial advisors who can draw a roadmap as to how to invest in various asset classes not just equity. Once the roadmap is drawn, looking at your risk profile and investment objective, please adhere to it. Laxmi Mata will surely bless you.



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