Market Normalization: A Buying Opportunity for Long-Term Investors
Veteran investor and Kotak Mahindra Asset Management MD Nilesh Shah sees the recent market correction as an opportunity for long-term investors to selectively accumulate quality stocks. He advises against basing investment decisions solely on the past six months’ returns, emphasizing that the market is now trading at fair value levels.
Speaking to CNBC-TV18 on March 4, Shah remarked, “Nifty is trading slightly below its historical average valuation. The excesses have been corrected, and this could be a good time for long-term investors to accumulate.”
However, he cautioned that the near-term outlook remains uncertain. Foreign Portfolio Investors (FPIs) have been heavy sellers, primarily due to three factors:
Disappointment with GDP Growth & Earnings Subpar corporate earnings in the last two quarters and sluggish GDP growth figures in September and December 2024 led to skepticism among foreign investors.
Global Capital Shift: The US government’s push to “Make America Great Again” has redirected capital flows away from emerging markets, affecting liquidity in Indian equities.
Overvalued Rupee & Market Dynamics: Shah suggests that FPIs took advantage of a trade where the rupee was expected to weaken, the Indian market to decline, and the US market to strengthen—a strategy that played out as expected.
Key Indicators for a Market Bottom
While pinpointing the exact bottom is challenging, Shah highlights three key signals:
✔️ End of Aggressive FPI Selling: Once valuations become attractive, FPIs may shift from selling to buying.
✔️ Valuation Reset: A forward P/E of 14-15x could indicate a market bottom.
✔️ Geopolitical Shifts: Reversals in global trade tensions, tariffs, and economic policies could trigger a market recovery.
Should Capital Gains Tax Be Tweaked?
Addressing the debate over capital gains tax adjustments, Shah stresses the importance of tax parity between domestic and foreign investors. He warns that tax cuts alone cannot guarantee market stability, instead urging a focus on earnings growth and governance.
“India has outperformed major emerging markets, including China, Brazil, Russia, and South Africa. Yes, the last seven months were challenging, but over time, investors have made money and paid taxes. The key is to continue driving growth,” Shah concluded.
