Expert View | India will be festive for years to come; allow stocks to grow over time: Deepak Shenoy of Capitalmind | Stock Market News

The Indian stock market will enter Samvat 2081 with the special one-hour Muhurat Trading session on November 1, after the benchmark Nifty 50 rallied 25 per cent in the last 12 months. The domestic market created history in Samvat 2080 by hitting several milestones. Samvat 2080 witnessed the Nifty 50 hitting 26,250 and the BSE Sensex crossing the 85,900 mark in September 2024.

D-Street analysts say the Indian market movement was strong, considering geopolitical tensions, global weakness, and elevated interest rates.  There is a solid degree of confidence that the US has turned a corner on inflation with a 50 bps cut, potentially two more cuts coming this year and 100 bps in 2025. After a 19.8 per cent earnings growth in FY24, analysts expect the Nifty 50 to grow by 6.7 per cent in FY25.

On the occasion of Diwali and Samvat 2081, Deepak Shenoy, founder and CEO of Capitalmind, said in an interview with Mint’s Nikita Prasad that India’s growth story is strong in the long term, and investors should focus on building a diversified portfolio, allowing stocks to grow over time. Shenoy believes the Indian economy will grow at least 4x in the next 10 years, and the market will be festive for years. The D-Street expert claims that the biggest money is made in the market through strong discipline and risk management.

Edited excerpts from the interview:
 

1. The Indian stock market is currently in a correction phase amid high FII outflows, cheaper valuation of the Chinese market, geopolitical conflicts, and US election-related jitters. What is your near-term outlook for Nifty 50? Should investors bet on large-cap stocks or focus on broader mid- and small-caps?

Our thought process is simple. First, there will always be something to worry about. Brexit, China, Japan, Elections, Wars or whether the finance ministers wear green or red. Give people something to worry about and they will worry. Markets on the other hand, don’t necessarily care about your worries. In the longer term, India’s story is strong. In the near term, Who knows? At best, you should build yourself a reasonably diversified portfolio and allow the stocks to grow over time. And let your worries be topics of conversation rather than investment.

2. Nifty 50 rallied nearly 25 per cent in Samvat 2080 and achieved new record-highs in the last 12 months. What is your investment strategy for Samvat 2081, and which sectors do you expect to perform the best during the festive season?

We continue to believe in a strong Indian economy longer term – that will grow at least 4x in the next 10 years. Most of this will come from the Indian domestic growth story, not of exports. Therefore our focus is on sectors that India is strengthening in: domestic manufacturing (“Make for India, in India”) is a theme we think will grow tremendously, especially in areas like Defense, Railways, Ports, industrial goods etc. 

The fuel to this is long term domestic consumption and premiumization, which is because we are such a large economy that can domestically serve itself. Infrastructure, from roads to ports to digital, is a key driver, as is the concept of financialization, where more people participate in the formal economy, through payments, investments and credit. Finally, we also like the idea of energy independence, from nuclear power investments to green hydrogen or electric vehicles. None of this will happen this Diwali, of course. But India will be festive for years to come.

3. What are your predictions for the upcoming US presidential elections 2024? How do you think it will impact Indian markets?

I would much rather have a US president that tightens immigration so that our best people will not want to move there. Beyond that, I don’t think there’s any relationship. It’s just entertainment, most of US politics.

4. Global central banks are on a rate-cut trajectory amid softer inflation. However, RBI remains divergent with an actively disinflationary policy to achieve the four per cent target, even as inflation hit a nine-month high in September. When do you foresee a rate cut in India, and what kind of impact will this have on the domestic stock market?

RBI will cut rates in February when inflation visibly cools off, in my opinion, only because the data has a base effect of what happened last year. But given that the RBI has been relentlessly expanding its balance sheet by acquiring dollars and printing rupees, we might not see a major drop in inflation. This is not likely to trouble us too much, unless growth falls off a cliff. India’s growth is strong, so unless growth falters, we might not see the RBI too keen on dropping rates.

5. How do you view the current IPO frenzy in India? Especially after the Hyundai Motor India IPO, India’s biggest issue to date, struggled to achieve full subscription. At a time of sky-high valuations, do you think it is the right time for retail investors to subscribe to larger mainboard IPOs?

There is no frenzy, because Hyundai didn’t get attention. A large IPO dampens demand and it’s likely that further IPOs also see little enthusiasm. Additionally, all the recent IPOs that saw large demand aren’t doing too well, and they are coming to the point where pre-IPO lockins open up, which will create more selling pressure.

Retail investors should invest in companies for the long term. IPO based punting is an exercise in futility for anyone with a corpus of more than 5 lakhs invested, because the absolute amounts earned are tiny in comparison. You might rejoice if you get any allocation in an heavily oversubscribed IPO, but make very little to show for it. And if you get allocation in a low subscribed IPO, you hate it because there is no listing “pop”. 

IPOs should not be used as if its an exercise in gambling, but more focus is on the IPO listing than on the company’s long term performance. My feeling is: buy into companies after a quarter or more of their listing so you can gauge their behaviour and performance.

6. How has Capitalmind been able to support investors in creating wealth during the market correction? Any particular trading strategy that worked for you and investors during similar market scenarios in the past?

Capitalmind cannot necessarily always create wealth in the short term, but we believe that in the long term, we have been able to really help. Our core portfolios have had returns of 25% to 30% CAGR over five years, which translates to a 3x return on capital invested five years ago, or more. This has been a good time for the market, but we have also seen the damage during Covid, the fall post the Ukraine-Russia war, and a little blip in October recently. 

Regardless, our investors in the PMS have seen us stick to our strategy, while knowing when it’s time to change. We hope to be able to perform similarly in the future, though of course there are no guarantees. The biggest money is made in the market by strong discipline and risk management, and we believe that is where we’re at the top of our game. We might not help build wealth in a correction, but it’s the corrections that help us build wealth for customers in the long run.

7. Do you think stock markets will generate returns similar to those in 2024 as last year? Where do you think Sensex and Nifty 50 levels will reach by the end of the year? Which sectors should traders bet on for eyeing maximum returns in the next one to two years?

We don’t like to predict market returns. Predictions are useful when you have some control over the outcome, but a market will behave independently of what you or I think. It’s a game of probabilities, and there are good chances of both a strong correction, or a continuation of the current long term trend. Our investing approach is to simply let our winners run, and to reduce our losers when we can – in effect, making more profit when we win and losing less when we don’t. 

The simplicity of this approach is that when markets give us a strong run, we tend to ride the wave as long as we can, because it’s the wild upswings that make people wealthy, and the risk management to control losses during downswings, that keeps them wealthy.

The sectors we like aren’t for one or two years. For those, you might use technical charts or volume analysis to make the money, because earnings take longer to reflect in a sector that has long term potential. Our sectors continue to be premium consumptions, domestic manufacturers, defence, infrastructure, energy independence, import substitution and financialization. 

We continue to invest in these themes, but as for what anyone else should do, we are not advisors, so you should make your own decisions independently. In the spirit of Diwali, it’s the Saraswati that hands over the Lakshmi – so build your own knowledge, and that will give you your own wealth. Happy Diwali!

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.