There’s too much optimism in market, a little pessimism can balance the scale: Nikhil Kamath | Zerodha: – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/expert-view/theres-too-much-optimism-in-market-a-little-pessimism-can-balance-the-scale-nikhil-kamath/articleshow/86579480.cmsSECTIONSThere’s too much optimism in market, a little pessimism can balance the scale: Nikhil KamathByTamanna Inamdar,ET NowLast Updated: Sep 28, 2021, 01:25 PM ISTSynopsis

“I am on the sceptical boat right now and I am wondering how long all news can be good news? Even events like Evergrande seems to be getting converted into good news today.”

Stock markets have become the natural outlet for all of that money. That trend will continue. At 2% penetration, there is plenty of scope for the number of retail users coming into the market to go up considerably, says Nikhil Kamath, Co-founder, Zerodha.

Do you believe this market can attain new highs or are you sceptical about how long this can last?
I am a sceptic. I think too much has happened too quickly. The markets are definitely expensive today compared to anytime in the past. When one compares valuations, the froth is fairly evident. I am on the sceptical boat right now and I am wondering how long all news can be good news? Even events like Evergrande or election news seem to be getting converted into good news today. This probably will not go on forever. It is up for anybody to interpret and nobody can really call the top.

One defining feature post pandemic has been the frenzy with which retail investors have come in. Are they here to stay? Can you share the kind of boom that you have seen in users since the pandemic began?
Everybody has seen a boom in new users and not just in broking. Probably everything fintech has done quite well in the last year. There is a structural demand for a place to allocate capital today. The biggest moving factor has been the interest rate cycle. We are a country where people were accustomed to earning 7%-7.5% on savings accounts and fixed deposits. That has gone down to such an extent today that it does not even keep pace with inflation. Gold and real estate have not done too well in the last five or 10 years. That leaves not too many avenues for a retail investor in India to park capital to beat inflation, have liquidity and a certain level of transparency where you can see what is happening every day.

Stock markets have become the natural outlet for all of that money. That trend will continue. At 2% penetration, there is plenty of scope for the number of retail users coming into the market to go up considerably.

A bull run works for you. Why do you feel it is important to also be sceptical and honest that there is a downside to this?
I think there is far too much optimism in the market today. A little bit of pessimism can balance the a scale a little bit. Everybody is optimistic, valuations are worrying especially for newbies who have come in and invested for the first time. I hope they diversify and are prudent in risk management. They should put some allocations in fixed income and commodities also because no cycle continues forever. FOMO makes us go all out and replicate the success of others. It is time to be prudent today to exercise a little bit of caution and get some diversification in place and put some money in fixed income where the levels of risks are very low. Those are the things that one should also be recommending today.

A lot of younger investors are now finding it very easy to dip into crypto currencies without having to understand or research much into it. Do you think it is a good idea?
Well all have envisaged a battle between the central bank and the crypto currencies. It has been long due and we have been building up to it. It looks like we are getting closer to that point as everyday progresses. Crypto had to be taken seriously and some kind of mass adoption before the central bank could come out in a meaningful manner and act for it or against it.

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