Nilesh Shah's Expert Market Analysis On Indian Market's Outperformance Against Global Peers | ET Now

Summary

In this interview, Nikunj Dalmia of Kotak Mahindra Capital discusses India's market resilience amid global economic challenges. He highlights the country's economic growth, corporate profit surge, and the potential overvaluation of the market. Dalmia advises focusing on quality over momentum, preferring high-float stocks and sectors like IT, FMCG, and banking over expensive valuation sectors. He also addresses concerns about PSU stocks, the impact of liquidity on market performance, and the outlook for FMCG, banking, infrastructure, and power sectors, suggesting a cautious approach due to high valuations and the need for fundamental analysis.

Takeaways

• 📈 Indian markets have shown resilience and outperformance, moving from the 10th to the 5th largest economy in a decade.
• 💹 Corporate profits have significantly increased from 4 lakh CR to 16 lakh CR over the last five years, indicating strong market fundamentals.
• 🚀 Despite global economic challenges, Indian markets continue to gain, suggesting a robust and growing economy.
• 🤔 There is a growing concern about market valuations being stretched, with some suggesting the market is 'running on steroids'.
• 📉 The interviewee advises caution, recommending a focus on quality over momentum and preferring sectors with reasonable valuations.
• 🔍 The discussion highlights the divergence between market performance and on-the-ground business experiences, indicating a potential disconnect.
• 💼 The preference is for high-float stocks with market-discovered prices over low-float, controlled ownership counters.
• 🏦 The banking sector is viewed with caution due to uncertainties like the liquidity coverage ratio and deposit competition.
• 🏗️ Infrastructure and capital goods sectors may face challenges if government capital expenditure slows down, affecting related stocks.
• ⚡ The power sector is expected to see growth in demand outpacing supply, with opportunities for gas-based power producers and equipment makers.

Q & A

How has India's economy performed globally over the last decade?

India has shown significant growth, moving from the 10th largest economy to the fifth largest in the world over the last decade.

What has been the impact of corporate profits on Indian markets?

Corporate profits have increased from about 4 lakh CR to 16 lakh CR over the last five years, which has undoubtedly contributed to the outperformance of Indian markets compared to others.

Is the current outperformance of Indian markets sustainable?

While the market is currently outperforming, there are concerns about stretched valuations and the need for caution, suggesting that the outperformance may not be sustainable without continued strong fundamentals.

What is the advice for investors regarding the current market conditions?

Investors are advised to prefer quality over momentum, focus on high-float stocks, and consider sectors with reasonable valuations such as IT, FMCG, Pharma, and banking over those with expensive valuations like capital goods.

What are the concerns regarding the valuations of PSU stocks?

Some PSU stocks have seen excessive valuations due to limited floating stock and high liquidity, which may not be sustainable and could lead to a correction.

How does liquidity affect the market's ability to climb despite underlying valuations?

Liquidity can drive the market in the short term, but eventually, stock prices are tied to earning power. If valuations become unreasonable, sellers may step in, leading to a correction.

What is the outlook for the FMCG sector in the coming months?

The FMCG sector is expected to perform well due to factors like increased consumer spending, good monsoon, and rural recovery. However, recent market movements suggest that valuations have become elevated, requiring careful stock picking.

What are the potential challenges for the banking sector in the near future?

The banking sector faces uncertainties such as the potential impact of liquidity coverage ratio guidelines and competition for deposits, which could affect profitability and require investors to wait for clarity before investing.

How might the government's capital expenditure plans affect capital goods companies?

If the government reduces capital expenditure, it could negatively impact capital goods companies. However, private sector capex is showing signs of revival, which could offset some of the potential decline.

What is the current view on the power sector, especially in terms of state investments?

The power sector is expected to see growth in demand outpacing supply, leading to potential shortages. While state investments in transmission may taper, private investments and the need for better transmission infrastructure should support the sector.