“This is the market where experience has become a liability. ‘Jisko jyada malum tha, usne kam paise banaya hai’ (Those who know more, made less money) because they have betted conservatively and more responsibly. But how long can this continue? At some point of time, valuations and fundamentals will come into play over liquidity,” Shah told ETMarkets in an interview.
Warning that there could be large corrections in certain parts of the market, he said there won’t be a big dramatic correction.
Low-floating counters and those with expensive valuations are likely to correct because they are way ahead of their fundamentals for non-fundamental reasons, said the Managing Director of Kotak Mahindra Mutual Fund.
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The rally, which is more pronounced in smallcap and midcaps, has left not just mutual fund managers, even FIIs and other experienced investors humbled as a large number of stocks with growing retail shareholding have delivered multibagger returns in the last couple of years.
Retail investors are no longer buying at peak and selling at bottom. In Suzlon Energy, for example, early-bird retail investors were seen booking profits in the June quarter while late entrants MFs and FIIs were seen buying the multibagger stock.
Retail dominance is also clearly visible in a number of PSUs as well as small and microcaps (SMEs) across various sectors like power, defence, rail and other capex plays.
“Please remember that fund managers are also human beings. We are not God. 6 out of 10 calls will go right, 4 can go wrong. Second, we will be good judges of the business, not necessarily of the price or valuation, because business is touch and feel. You can go and check whether a factory is real or not, whether goods are really manufactured or not, whether the management is good, bad, ugly. You can make a reasonably researched opinion on the fundamentals of the business,” Shah said.
Describing valuation as an art and not science, the investor with nearly 3 decades of experience said one may think of something as expensive or cheap depending on the time horizon.
PSU stocks
In the last 1-2 months, the PSU theme has been giving signs of slowing down after delivering multibagger returns in the last few years. Is the PSU party over?
Shah says going forward PSUs will become a bottom-up stock play rather than a sector play.
“If I have to take a three-five-year view on PSUs, I will go for companies with more floating stocks rather than less. I will go for futuristic business models rather than backward looking business models and I will go for companies which are taking the world as a market rather than just India,” he points out.
PSUs with lower free-float will fall when supply comes. “If you are going to make a tank or heavy armoured vehicle, then your future is not that bright. But if you are into drones, space technology, the future will be far brighter. If you are in defence or railway, then your biggest customer will remain the government. And their budget on defence and railways are not going to increase at an exponential pace. But if you are covering the entire world, you have an export market and technology, then you will do very well.”
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Risks to bull run
The biggest risk, according to him, is investor expectations of 30-40% return. “Please moderate your return expectations. There is a big expectation mismatch between investors who are giving us money, and what we think is potential return going forward,” the mutual fund manager said.
However, the downside is limited as India is no more in the days of Harshad Mehta. “The rally is backed by fundamentals, valuation and sentiments. Plus, investors have matured. They know when to buy and what to buy. There is some inexperienced money, but a lot of it is experienced money.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
