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Kotak AMC’s Nilesh Shah: Lower operating, borrowing costs to support mid-cap stocks' profitability in 2020

The first half of 2020 will be narrow and the second half should see a broad rally emerging as people start taking into account valuation of small and mid-caps, said Nilesh Shah, managing director of Kotak Mahindra AMC, told CNBC-TV18.
Shah said that lower operating and borrowing costs will aid profitability of many mid-cap stocks in 2020.
Talking about IBC, Shah said, “We have seen resolution of IBC (Insolvency and Bankruptcy Code) coming through over the last one year and yet the stocks have underperformed.”
“This is primarily happening because the speed of resolution in IBC is less than desired while there are exceptional cases like Essar where banks have recovered a lot of money. There are many cases especially in small and medium companies where the recovery rate is far below expectation."
Shah has about 25 years of experience in managing assets.
Therefore, IBC is a great step because it has put fear in the minds of borrowers that debt is not permanent equity, debt is not something when you are willing to pay or when you are able to pay, it’s an obligation which you have to honour that’s going to strengthen the banking system, he added.
On Budget wishlist, he said, “The Budget should be realistic, it should assume tax collection, overall revenue and the GDP growth which is realistic, feasible. The Budget should fund the deficit by way of monetisation of government assets."
"Globally as well as in emerging markets we have seen government raising deficit in order to support growth, but at the same time they have monetised their assets including land, real estate. Soft assets like spectrum of holdings in government companies in order to fund that deficit.”
“I also want budget to be bold, for example, we have an ambitious target of achieving $5 trillion GDP. To achieve that kind of GDP growth rate you require investments and to fund those investments you require savings and at the current rate of domestic savings of around 30 percent we won’t be able to achieve the desired GDP growth rate."
"So we must augment our domestic savings with global capital and while we have opened on equity market, we need to open up on the debt market. There should not be tentativeness over there,” Shah explained.
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