When you talk about earnings, where do you see the fillip? We have got an early onset of the festive season this time, so perhaps that fillip is anticipated, but it may not have such a large multiplier effect. Don’t you think it is going to be restricted to just staples, autos, etc?
Nilesh Shah: Clearly, we need velocity. The government spending is at all-time high and fiscal profligacy has given way to fiscal prudence. We are one of the few countries in the world where the debt to GDP ratio has come down between the subprime crisis and COVID crisis. On the monetary side, we have taken steps on the liquidity as well as the rate cut. Both fiscal and monetary put together are not resulting in any growth acceleration. It is one of the highest in the world, but it is well below our potential.
The weak spot in this whole thing is private investment. There are multiple reasons why private investment is not on the front foot. One could be that large companies are doing investment, but small companies are not. In many cases, technological disruption is unnerving entrepreneurs to commit capital. In some cases, there is a succession issue. The new generation does not want to do old economy business. We will have to ensure that ease of doing investment is accelerated. We have taken many steps, but we have a long way to go.
The Rs 1 lakh crore R&D fund, which the government has announced, is a step in the right direction. If we can leverage that appropriately, then who knows the private sector investment will also pick up. So, the government has taken consumption side steps. We need to revive private investment.
Like you said, FY26 is pretty much in the price, but for an investor, there are a lot of question marks still. How can you prep yourself for FY27 because the market is a forward-looking beast that is going to start pencilling in and pricing in FY27 about three to six months earlier itself?
Nilesh Shah: In this kind of environment where events are fast-paced, unpredictable, it is always back to the basics. There is no way we will be able to predict what President Trump is thinking, what kind of tariff actions will happen. So, it is time to focus on basics, find out companies which are relatively immune from global headwinds, find out companies where valuations are reasonable and management is committed to governance and growth.
Today, fortunately in India, there is a long IPO pipeline. There are many entrepreneurs from second and third tier towns and cities coming into the market. It is almost similar to the Indian cricket team. There was a time when the Indian cricket team was dominated by metros. Mumbai, Shivaji Park, contributed probably half of the team. Over a period of time, we have seen tier II and tier III towns and cities cricketers coming and making an impact. The same thing is happening in Indian entrepreneurship. There was a time when large business houses dominated the narrative. Now we are seeing entrepreneurs coming from second and third tier towns. So, ignore the noise. Focus on the long-term. Obviously you will have to take one or two hits in this process. It is unavoidable.You were just giving that cricket analogy and in that parlance where in the market are you seeing some areas which the market is not paying a lot of attention to right now, but which are relatively sheltered from tariffs? Anything that could be a safety net to investors right now?
Nilesh Shah: We are under no delusion that we are so smart that we will be able to pick up something which the market has not noticed. The market is much smarter than all of us. The market always teaches us and that is why on my X handle, I say student of the market. I have to constantly remind myself that the market is much smarter than us. At Kotak Mutual Fund, we believe the domestic consumer discretionary story will get supported by tax rate cuts, EMI burden reduction, potential GST rationalisation, or petrol-diesel price cuts and finally the 8th Pay Commission coming into play. This will be across hotels, tourism, airline, home improvement, and all those kinds of sectors are more domestic driven. Some of this money will also be saved and not spent and hence financial services is something one can look at. Clearly, we are more focused on domestic stories than global stories. We are more focused on bottom-up stock ideas and betting entrepreneurs. In many sectors, the growth will still be good though the valuation could be a challenge.
