Nilesh Shah, Managing Director of Kotak Mahindra AMC, shared his views during a panel discussion at the Morningstar Investment Conference held in Bengaluru.
At this point of time, how should an equity investor be playing it?
We should all be overweight equity as much as possible. Right now, 25% of Indian equity is owned by foreigners, the FIIs, and about 10% odd is owned by the foreign direct investor, such as Unilever owning Hindustan Lever. That accounts for 35% while 50-55% is owned by the promoters. Effectively, what is left for the rest of us?
Today the stars are aligning in favour of the equity market. Domestic flow of capital into equities is increasing. There are 86 lakh Indians who do SIPs every month. To benefit, they should continue and not stop in between like they had done before. But 86 lakh Indians doing SIPs gives Rs 30,000 crore to us every year. The domestic flow of capital from real estate and gold coming into equity can really change the dynamics of demand and supply. In 10 years we have imported $221 billion of gold, silver and diamonds. All the FIIs put together - in the debt and equity markets - have only given us $190 billion. Imagine this $221 billion not going out and staying in India. Imagine what will happen to prices.
From a flow point of view, our markets were running only on one wheel of foreign institutional money. Now, it will run on foreign as well as domestic investors' money. That's going to make a big change.
About 10 years ago, the Ministry of Finance approved pension funds, provident funds to invest in equity, but the Ministry of Labour did not ratify it. Now this government has ensured that Ministry of Labour also ratifies it and provident funds are putting money in the equity market. This year they will put between Rs 5,000-10,000 crores. But over the next 5 years they will bring Rs 10 lakh crore. In most parts of the world, provident funds are the largest owner of equity.
Then there are the fundamentals of economy. We believe the government is actually working for the country. The way things are happening is changing and we are seeing it in the unlisted segment where your clients will be getting $1 million and $1 billion valuations in no time. If that kind of bullishness, which is there in unlisted segment, comes to listed segment, what will happen?
So spread the cult of SIP. There will be short-term volatility; markets will go up and down. But if you give time to your investment, things will really grow manifold.
Our GDP is now, let's say, about $2 trillion. Over the next 7-15 years, it will become $4 trillion. So, in this $2 trillion GDP we created Infosys, Axis Bank, Kotak Bank, Reliance Industries Limited and so on and so forth. Over the next 7 to 15 years you are going to see a similar kind of wealth creation. It's your job to capture it as much as possible. Don't let go of this opportunity. No generation before or after us is going to get this kind of opportunity.
But is it right time to invest? The India story sounds good but what about valuations? Should we wait to see how the economy is impacting corporates?
The Indian equity market is like the Indian Railway. When you sit in the train, it makes lot of noise. It gives lot jerks. But it is important to sit in the train rather than stand on the platform. What you're recommending is that try to stand on the platform until the trains improve. In that case you will keep standing.
Look at the HDFC stock. How many times it would have looked expensive in the last 25 years? How many times would it have corrected in one year from top to bottom? Average is 45%. If HDFC was quoting at Rs 100 every year, it has come down to Rs 55 every year. The gap between high and low of the HDFC stock is 45%. Can you get in at the bottom? If you have that ability, great! If not, do an SIP every month. After 10 years you will recognize what you have got.
It's like bungee jumping. Half the people return after paying money but refuse to jump. Don't think too much, just jump in.
Looking at equity investing in this perspective, is there a rationale for allocating some amount to global funds?
From an asset allocation point of view you do need to look overseas, but let's not forget what we have created.
Take HDFC. They only give housing loans. The customer loyalty is such that if someone is walking to the HDFC branch to get a loan and at the door they are told, SBI is giving a quarter percent cheaper, the customer will move out.
Take Apple, the Amitabh Bachchan of the stock market. Its market cap is No. 1 to No. 10 and then the second company comes. The brand loyalty of Apple is tremendously strong. People pay a premium to buy that product. My daughter only wants an iPhone and if I do not buy her the latest versions, as they come out, she will probably divorce me. Such is the brand loyalty of Apple.
Apple is sold all over the world; from Azerbaijan to Zambia. HDFC is probably only available in some parts of India. It has barely scratched the surface India.
Apple's market cap is 23 times bigger than HDFC.
Yet, in dollar terms, like-to-like, apple-to-apple, orange-to-orange, HDFC has delivered 3 times more return than Apple.
All of us knew HDFC was a great company. I can bet that in this audience there will be no one who has 10,000 shares of HDFC, but most of them will have Apple's iPhone and iPod and iPad. So, do go overseas but do ensure that we retain ownership of HDFC in India.
On how the government has performed over the past 18 months and the reason for subdued corporate growth..
FIIs are movers of the markets. Is there going to be a time when domestic institutional investors are on par with FIIs?
