Nilesh Shah of Kotak says easing tax burden may help attract foreign flows, but won't be enough

Much of what is known is already priced in at current market levels. Oil at $100-110 a barrel may be priced in, but $150 isn't. Similarly, markets may have factored in some increase in US interest rates, but not a much sharper rise.

If conditions worsen beyond current expectations, markets could fall further; if they improve, markets could recover.

Avoid pockets where valuations are expensive and companies may struggle to meet earnings expectations. Remember, price is what you pay, and value is what you get.

We see opportunities in consumption, particularly discretionary spending and premiumization across automobiles, alcoholic beverages, travel and tourism. The implementation of the Eighth Pay Commission recommendations could put more money in the hands of over 2 crore government employees and pensioners, supporting these sectors.

Banking and financial services are another area we like. Deposit and credit growth are both above 15%, non-performing assets are at historic lows and valuations are below their historical averages. Foreign investor selling has weighed on prices, but a slowdown in selling could support a recovery. More importantly, there is a leadership transition happening in this space. Their strategies will have a positive rub off.

Global investors typically seek higher returns, while Indian investors are willing to settle for lower returns. This difference in expectations helps explain why foreign investors are selling while domestic investors continue buying.

Large- and mid-cap valuations are around 30% below September 2024 levels and below their historical averages. Small- and mid-cap earnings growth was around 20% in FY26, with momentum continuing into FY27. While some stocks remain expensive, valuations across much of the broader market are reasonable.

There is also greater scepticism towards India among foreign investors. Historically, bull markets often build on scepticism. Our view is that foreign selling reflects higher return expectations, while domestic investors are comfortable with more modest returns.

First, we need to remove investment frictions, including those arising from taxation. Second, India's earnings growth and valuations must look attractive relative to other markets. Third, we need to address global perceptions of India.

Our economy continues to grow, but international coverage sometimes focuses more on controversies than on the underlying numbers. We need to manage perceptions, remove friction and continue delivering growth.

The one thing I can control is my reaction to market risk. During the covid times, I heard of a doctor who sold all his investments even though he did not need the money simply because he could not bear to see prices fall every day. His notional loss became a real one.

At the other end, a mutual fund distributor told me about an elderly woman who moved a large part of her debt-hybrid investments into equities and went on to multiply her money four to five times in the post-covid recovery.

Neither could have predicted covid. What mattered was how they responded to the correction. One turned a paper loss into a real loss; the other turned a market opportunity into substantial wealth.

You will never be able to predict everything the market does. Focus instead on managing your own greed and fear. When others are fearful, be willing to be greedy; when others are greedy, be cautious.

Mutual funds halt fresh investments in gold FoFs amid rupee pressure

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