The Indian stock markets are volatile and have seen corrections with foreign portfolio investors being net sellers in October and, in the runup to Diwali and toward the end of the year, there are opportunities for investors in the broader market if the correction continues, feels Shripal Shah, Managing Director and CEO, Kotak Securities.
“There still are pockets of exuberance in the markets, but I think new opportunities will be created in the broader markets if the correction continues,” Shah told businessline in an interview. The FPI selling was not a matter of concern because domestic investors can take up the slack.
Mutual funds as well as investors in them may have to rebalance their portfolios, especially with fewer opportunities left in the thematic and mid-cap segment. MFs may also have to sit on cash for some time to wait for the right opportunity, he said.
Excerpts from the interview:
FPIs are pulling out of India on the China factor. Do you think valuations have cooled and how can investors play this market?
There still are pockets of exuberance in the markets, but I think new opportunities will be created in the broader markets if the correction continues. It is a healthy correction following a stupendous rise in the market.
Within emerging markets, India is still a good story. My understanding of this month’s FPI selling is that it is more about interest rates increasing in the US. That is where I think a lot of selling has happened, leading to some risk-off sentiment. How yields move is going to be crucial.
FPI allocation might start in China, depending on new measures taken by the Chinese government. The expectation is that they will continue to provide more stimulus. But India remains strong, and we are bullish about the long-term growth story.
Even if FPIs were to sell, strong domestic flows continue. For instance, last month, mutual funds were sitting on ₹1,95,000 crore in cash. So, we should not be as worried about FPI selling as in previous years.
There is absolute frenzy in the primary markets. Is there too much supply of paper or do you think that the markets can absorb it?
There is a need for supply in the equity market. We have liquidity in the markets, and demand is increasing. With the help of IPOs, some of this demand is being met. However, there is a need for more paper in the market because demand without commensurate supply can sometimes stretch valuations beyond the right level.
IPOs again represent a supply-demand equation. We need more quality supply coming in. There is still strong demand for IPOs from the retail segment. The next eagerly awaited IPO is Swiggy. Given the brand recall that Swiggy has and considering the performance of Zomato, which has gone from ₹45 to over ₹250, we expect it might be one of the highest-demanded IPOs in recent times. This interest is not only about Zomato as a benchmark but also about the growth seen in this segment.
As you pointed out MFs are seeing huge flows. Are there opportunities for them to invest as well as provide returns to investors?
The dilemma for the mutual fund industry is that many flows are coming into thematic and mid-cap segments, with fewer opportunities left in these areas. If demand is high, we need more supply, and that is where the upcoming IPOs or divestments will play a role in restoring balance.
I believe there will be some rebalancing in SIP portfolios. Advisors will likely consider balancing portfolios and how to change weightage from small and mid-caps to large caps.
If some quality midcaps are down 30-40 per cent, opportunities might emerge. Mutual funds will play a role in rebalancing and may sit on cash for some time to wait for the right opportunity.
Everyone is eagerly awaiting the US elections outcome and its impact on flows, especially to emerging markets...
What will be very important for the Indian market is the policy the next US president will have regarding rate cuts and their impact on yields. If yields soften, capital flows should continue.
This consideration is more significant for Indian market than what is happening in the US, which may impact US markets. For emerging markets, it is more about how yields move and the state of the economy. If we see rate cuts immediately, there will be a different impact.
Sebi has been expressing concern over the participation of small investors in the markets and taken some safeguards. As a market intermediary how are you helping in this?
To facilitate financial literacy, Kotak Securities has partnered with NISM, educating more than 79,000 young Indians through its CSR initiative “Kona Kona Shiksha” during FY24. Under the program, students gain knowledge of personal finance, fundamentals of investing in securities markets, and investment principles.
In addition, to increase youth participation in the capital markets, Kotak Securities has introduced the Trade Free Youth Plan for those under 30. This plan is designed to help them start their investment journey with simplified research and learn along the way. It features zero account opening fees, zero brokerage on delivery trades, and zero AMC on demat accounts through its Advance Kotak Neo platform. This is a one-of-a-kind youth-centric plan that no one else in the industry is offering.