Market probably was looking for a catalyst to come down to correct the valuation to take the pause and global cost of capital is providing that.”
, MD, Kotak AMC, feels that much of the slowdown of India can be explained by muted exports
. In an interview with ET Now, he is optimistic of India delivering almost a double-digit growth.
ET Now: What is happening because up until now we had LTCG to blame it all on, but it now seems like this correction is more global in nature?
Nilesh Shah: I think we should not be blaming LTCG because it has been introduced with grandfathering. This is probably a function of two factors — cost of capital has started moving up; In the US, 10-year yield has crossed 2.75 per cent, in India 10-year yield has crossed 7.5 per cent. Both these things have resulted in cost of capital going up.
On top of it, valuations were high. We remember our first discussion after the beginning of the new year where clearly there was talk about small and midcap stocks
. On January 16, 2018, small caps were about 33 per cent premium to their 10-year price to book average. Midcaps were about 25 per cent and large caps were about 10 per cent. So, with recognition of cost of capital moving up globally as well as locally, these premiums are probably shrinking. The third dimension which probably has come in is the political uncertainty, especially there are some talks about elections and so on and so forth.
So, market probably was looking for a catalyst to come down to correct the valuation to take the pause and global cost of capital is providing that.
The good part is that FIIs
are still net buyers in our market as of the yesterday and probably this time, the corrections will be more in non-quality stocks whereas large caps and some of the quality midcaps will provide great opportunity to enter while they correct for sometime.
ET Now: We are not extremely worried about long-term taxes because if there is a prospect of 20 per cent return, then frankly nobody will bother about paying 10 per cent tax. Our worry is that is this beginning of a global turn? The economics for India and developed markets is very very different. US market or US economy is on a different kind of curve, we are on a different kind of a curve, we are coming out of an economic slump, they are peaking an economic recovery. So, our only fear is that if the global correction intensifies, what happens here then?
Nilesh Shah: So, to some extent, if we see our export growth, even when global economy was doing well, it was quite subdued. This was partly because of overvalued currency and high real interest rates which we had in our economy.
So, to some extent, a lot of this slowdown of India can be explained by slowdown in the exports. A lot will depend on how we manage our domestic economy. One option is to look at the global economy and keep on crying… the other thing is to learn from our own history in the past like 2003 to 2008. We could deliver almost double digit growth. We could learn from China, they have never bothered about what is happening in the global, they have chartered their own course so we will have to take our own course, we will have to take our own destiny in our hands.
If we can do that, then certainly growth will be there despite global growth slowdown. Today, at least we have now the foundation or the platform, the third quarter FY18 results have come good, a lot of it can be attributed to base effect of demonetisation quarter, but the body language of the management is positive. They are looking forward to next quarters in terms of accelerated growth. So, while 2017 was the year where there was deteriorating micros and improved macros, now the situation is reversed, higher oil prices, interest rates, current account deficit and higher fiscal deficit have clouded the macros, but the bottom up micros in terms of company communicating their future have improved a lot.