In talks with Mr. Nilesh Shah-MD of Kotak Mahindra Asset Management Co.Ltd.
Written on Friday, December 1, 2017
By Team Bajaj Capital
With the reforms initiated by the Government, Equities are on a structural uptrend. Nilesh Shah, Managing Director, Kotak Mahindra Asset Management, tells how an investor can strategize his/her financial plan and avail benefits of the current market trends.
Q. What is the current market scenario and how an investor can plan his investments?
Real estate returns are on paper. It is not easy to sell the property without impacting prices in the most part of India. Gold has remained subdued for more than last 7 years. Debt Instruments are giving mid-single-digit return post-tax. Equity markets have run up sharply and valuation looks high. Global as well as local factors such as Middle East Situation, Protectionism, Brexit, GST Roll out, Slower Job Creation, Tepid Earnings Growth, Revival of Investment etc. deter investors to enter equity market.
To begin with, an Investor must have a Financial Plan. I want to be rich is not a Financial Plan. I want to earn maximum return on my investment is also not a financial plan. One needs to set Goals and plan savings accordingly. To draw a proper financial plan one needs an advisor. A Good advisor will balance short-term spending vs. long-term saving, Risk vs. Return, and Expectations vs. Reality. Many savers in absence of proper financial plan don’t realize the full potential of their investments and achieve financial nirvana.
Q. What Approach should investors adopt in a volatile market?
Markets will be volatile. Be it Gold, Real estate, Debt or Equity. There will always be cyclical up or downswing in the market. If you want safety, return won’t be adequate. If you want the higher return, the risk will come alongside. An investor must adopt a disciplined approach to ignore cyclicality and ride the structural trend. This discipline comes through asset allocation. Don’t put all eggs in one basket equally applies to Investment. Currently, Equity Markets are at the higher end of fair value and will have cyclical swings in days to come.
However, they are in a structural uptrend due to all the reforms initiated by the Government and good work done by India Inc. In such a market, if an investor is under-invested in equities than he/she should do Systematic Transfer Plan (STP) in equity funds. Whatever one wants to invest, let it be divided in 10 to 20 installments and start investing in the market at Regular intervals covering 6-12 months. If there is a correction in the market, then one can prepone investments to enter at a lower level. If one is neutrally invested in equities than one can continue with Systematic Investment Plan (SIP) on a monthly basis. SIP is a simple and very effective tool. It disciplines an Investor through the cyclical swings of the market and helps ride the structural wave. If one is over-invested in equities than it is time to remove leverage and take some profit home.
The enclosed table indicates what strategy should be adopted during the different phases of the market. After making an investment, it is important to give sufficient time to invest. A lot of people want to focus on timing the market to make quick money. It is your time in the investment which makes money for the investor.
Sachin Tendulkar accumulated maximum runs in test cricket by staying on the pitch as long as possible and facing as many deliveries as possible. He didn’t try to hit every ball for a four or six and score maximum runs. If the person of the caliber of Sachin had to stay on the pitch to score run, a common man has to spend time in the market to make money.
Q. What are the prospects of Indian Economy in the near future?
India started economic reforms in the early 90s. India’s GDP & b Market Cap was under $300 bln at that time. Today India’s GDP is about $ 2.2 trillion and the Market cap is about $ 1.95 trillion. Over last 27 years, GDP & Market Cap has multiplied about 7 times in USD terms, while Sensex has multiplied more than 39 times. On a long-term basis, there is a high co-relation between Size of Growing GDP and Market Cap. As per reports, India will become the third largest economy in the world over a period of time crossing $ 10 trillion in GDP. If we work hard it will happen sooner than later. If the economy expands, markets will also go up. It will not be unfair to estimate that over next 5 to 7 years, the economy will expand by more than what it is today. It is an opportunity for investors to participate in that Growth Journey. Asset-allocation and long-term investment will help investors to participate in the fabulous growth story.
'Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing'