If I have the luxury of not looking at my portfolio for three years and build it today, I will go and buy industrial stocks, says Nilesh Shah, MD, Kotak AMC, in this interview with ET Now. Edited excerpts:
For mutual fund investors, what should be the exposure to debt in their portfolios?
Essentially, the short-end of the curve has been doing reasonably well for mutual funds. That is where we have seen steepness of interest rate movement. The interest rate movement has been calibrated by the Reserve Bank of India’s intervention. US interest rates on 10-year benchmark went up about three times from the bottom. Indian interest rates are exactly where they were, so that is a commendable job by RBI in managing the governments borrowing programme and keeping interest rates at the same level.
Now this creates opportunity for dynamic bond fund managers who can play this interest rate volatility to generate return. For debt investors who want play safe, short-end of the curve provides a better opportunity. Short-term bonds, corporate bond funds and PSU debt funds will have less impact of rising interest rates. If you believe in your fund manager, then dynamic bond fund provides a good opportunity. All these funds have delivered higher single-digit returns over the last three years. While rising interest rates will pare some amount of return, but if you take a three-year view these funds should be able to do well.
You shared a very interesting anecdote the other day about how Koreans responded during the Asian crisis and how gold came to their rescue. Do you think the solution to our crisis right now lies in gold?
Koreans donated their gold during the 1997 Asian crisis and the government was able to raise about $2-$2.5 billion worth of precious foreign exchange savings. Our problem is the leaking bucket. We desperately go abroad to attract foreign investments. We lay a red carpet for foreigners to come and invest in India. However, when we get that money we end up spending that on the import of gold.
In the last 21 years, on a net basis Indians have imported about $373 billion of gold, excluding gold smuggling and those owned by travellers when returning from abroad. If we take a round number of about $500 billion, it is more than the foreign direct investment we have received. It is more than the foreign portfolio investment we have received. It is probably just little less than the combined FDI and FPI. If through a miracle India was not importing gold and not sending this precarious foreign exchange abroad, then that $500 billion would have been invested in building healthcare system, hospital beds, oxygen concentrators and in building roads, schools, colleges and so on and so forth. This $500 billion of savings which leaked out in just this century could have impacted India’s growth.
So I believe that we as Indians need to reduce our obsession of gold. We need to monetise our existing gold holding. Unfortunately, the bulk of our gold holding remains in tijori and in the black economy. We need to ensure that the frozen savings lying in the tijori comes into the main economy. Gold financing companies are doing a great job in creating liquidity out of that gold, but we need to do it on a much larger scale.
What would be your advice to young investors on how to become rich?
My immediate answer will be to invest in Kotak Mutual Fund, but that is like asking a barber whether you need a haircut or not.
I have three advices for investors to become rich. One, be a long-term investor. There is a proverb which says that you should not expect mangoes before 12 years. In the same way, you have to create wealth over a period of time. Second, be a regular investor. All the little savings which you do by avoiding one outing at a hotel or a restaurant will go a long way in building a good retirement corpus. The third one is to follow a disciplined asset allocation. You do not put all the eggs in one basket. In the same way, you do not make all your investments based on past performance. Whatever has given 100% return in the last one year, chances are that in the next year they are not going to give 100% return.
So be a regular investor, be a long-term investor and be a disciplined asset allocator. This is good enough for you to become rich.
Is it too early to factor in a year-end target for the index? We are still uncertain about the next few months. Given how bullish everyone seems to be, is the year-end target doable?
When there is a consensus, there is always a risk. Markets have always surprised. At this point of time, we maintain equal weight allocation to equity. Markets are not cheap like they were in March, April, May or June 2020 period and markets are not very expensive either. It is pricing in risk and reward. It is pricing in hope and fear. There will be some amount of consolidation at the current level. So maintain equal weight allocation to equity. Take the ride of volatility in your stride and try to take advantage of that by buying into correction if it comes.
I know that you are into spirituality. Imagine if you have to go on a three-year break and you are allowed to invest once before three years, then what is that one trade you would like to do before going for the three-year break?
If I have the luxury of not looking at my portfolio for three years and build it today, I will go and buy industrial stocks. These companies have seen very subdued capital expenditure in the last five years. Now we are seeing revival of capex across the world. The mother of a big wave on infrastructure and capital expenditure is coming around the world, thanks to the government stimulus. There will be export and local markets for capital industrial equipment. Today commodities like cements are running at the top end of their capacity utilisation. Pretty soon, there will be plans for spending or incurring capital expenditure on this. Now you have a very good combo of next three years where companies have become fighting fit because they have to survive. They are going to get volume expansion in local as well as exports market. So if I have to play a three-year game, I will buy quality industrial stocks which have export presence as well as local market and sleep over it.
( Originally published on Jun 24, 2021 )
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