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market | IST

Market at fair valuation, time to book profit in equities: Nilesh Shah of Kotak Mahindra AMC

Market veteran Nilesh Shah believes that from a valuation point of view, there is not much comfort as most of the market is priced near fair value or little above fair value. There are some pockets of low floating stock concentrated buying where valuations are in excess. He adds that in this market, one needs to be a growth investor rather than a value investor because you are unlikely to find too much offer value.

The Indian market is trading at a fair valuation, while the rise in corporate profits is fuelling the upmove in the market, said Nilesh Shah, MD, Kotak Mahindra AMC. Speaking to CNBC-TV18, Shah said that there are not too many pockets of value in the Indian market but one needs to scout for growth stocks.
“From a valuation point of view, there is not much comfort, most of the market is priced near fair value or little above fair value. There are some pockets of low floating stock concentrated buying where valuations are in excess. So, in this market, you need to be a growth investor rather than a value investor because you are unlikely to find too much offer value,” Shah said.
He is of the view that there are a couple of PSUs where profit growth over the last four or five years has been far higher, in double digits, and yet PE ratio has been derated. There are certain stocks in the energy sector where profit growth and valuations are reasonably below the historical average, but environmental concerns have ensured derating.
Barring those stocks in energy and PSU, Shah believes, most of the market is fairly priced.
However, he also said that this was the time to book profit in equities.
“We have been advising, for the last couple of months, that this is a fair value market. This is a time to be equal weight allocation to equity. Please don’t be lured by the last one-one-and-a-half year return to invest into equity or equity mutual funds. So if you are over-invested and leveraged, this is time to take profit and become unleveraged, become an equal weight,” Shah said.
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He noted the recent outperformance of midcap IT companies over the largecap IT names and continues to remain bullish on IT companies as the sector is likely to be beneficiary in the post-COVID era.
“Undoubtedly, COVID-19 has been beneficial to the IT sector. The kind of growth we are seeing in work from home environment has been stupendous and despite limitations on travel, Indian IT companies have delivered fantastic results capturing the growth opportunity. What we didn't anticipate was that some of the midcap IT companies will do even better than largecap IT companies. Of course, that has been proven across IT midcap counters, where they have pursued different growth strategies and market has rewarded them,” he said.
Shah believes the IT sector has a reasonably good growth opportunity, thanks to COVID-19 post-pandemic effects, and as the Indian IT companies have discovered various new ways of capturing this growth opportunity. The ‘China plus one’ policy will also benefit the Indian services companies.
“It’s far more visible on the manufacturing side, but I am sure there will be some impact even on the services side and overall we remain reasonably bullish on the IT sector,” Shah added.
He also believes the real estate sector is on the cusp of a big upcycle.