Nilesh Shah of Kotak AMC's market strategy as India, Pakistan war escalates

Business Standard

09-05-2025

Shah suggests investors stick to the basics and focus on quality stocks that are available at reasonable valuations. Look at stocks with good float.
Puneet Wadhwa New Delhi
Indian stock markets have had to deal with geopolitical developments between India and Pakistan on one hand, and tariff-related fears on the other in the last few weeks. NILESH SHAH, managing director at Kotak Mahindra AMC, tells Puneet Wadhwa in a telephonic conversation that if there's no escalation and the conflict remains limited, the markets will emerge stronger.Had the March 2024 quarter corporate results been weak and FPIs remained sellers, the markets could have dropped by 10 per cent, he said. Edited excerpts:
Do you think the market has responded in a measured way to recent geopolitical developments between India and Pakistan?
Yes, I do think so. Let's set aside geopolitics for a moment. First, quarterly results from 108 companies have exceeded expectations. Now, one can argue that good results come early, and bad ones later — but the fact remains, actual numbers beat estimates. Second, Foreign Portfolio Investors (FPIs), who weren't expected to buy, have turned buyers and are purchasing in significant volumes — openly and not quietly.
On the supply side, there's no major IPO or QIP activity; it's primarily retail and HNIs booking profits. Domestic Institutional Investors (DIIs) are still net buyers. So, flows and fundamentals have turned favorable.
That apart, the India-UK Free Trade Agreement (FTA) is a win-win, especially for segments like garments, electronics, and mobile phones — areas where India wasn't previously strong. It positions us well for future negotiations with the EU and US, making the China+1 strategy a real opportunity.
In essence, flows and fundamentals are supporting the market and that's why they have have reacted with maturity. Had results been weak and FPIs remained sellers, the markets could have dropped by 10 per cent.
What about the impact of geopolitical conflict?
In limited conflicts like Kargil, the market actually went up — over 30 per cent. We've seen wars in 1962, 1965, 1971, and 1999. Our anchoring is based on this history — that limited conflict does not severely impact markets. This is the bias we are working with: that this is still a limited conflict, not a full-scale war. Plus, Pakistan doesn't have the resources — no money, limited ammunition, and no major global support apart from countries like China, Turkey, or Azerbaijan. Turkey and Azerbaijan don't matter; China does, but the extent of its support is uncertain. Markets prefer a low-intensity conflict over a full-scale war.
So with geopolitics on one side and tariff uncertainty on the other, the markets are stuck in a range?
Undoubtedly yes. The Indian stock markets are stuck in a chakravyuh. Our market is already trading at fair value — even slightly above. We're at 21–22x forward earnings, and not at 18x. So, the returns will be lower — around 8–10 per cent. That's a day's movement for Indian stocks on a volatile day. We're in a range-bound, slow-grind market. However, except for geopolitical risks, everything else is in our favor — hence the market's moderate reaction. If there's no escalation and the conflict remains limited, markets will emerge from this stronger. But if events go against market expectations, markets will need to readjust.
Are there any assumptions that the markets are working with at this stage?
Yes, and these include the belief that the US will eventually cut interest rates, there will not be major tariff issues with India, domestic growth will continue and key government schemes like Ladli Behna or others will not dent or derail growth. These assumptions are already baked into the market.
From a strategy perspective, should one look at defensive or look at high beta plays in the current markets?
I suggest investors stick to the basics and focus on quality stocks that are available at reasonable valuations. Look at stocks with good float — some stocks have not fallen simply because they don't have enough float, so prices remain sticky.
Any sectors that should be on investor's radar?
Sector-wise, consumer discretionary looks promising. ₹1 lakh crore in tax cuts is now in people's hands — most will spend, and not save. Interest rates have dropped by 0.5 per cent, and might drop another 0.5 per cent. Oil prices are in the $60–65 range. We could see petrol/diesel price cuts closer to Bihar elections— directly putting money in people's pockets. The 8th Pay Commission is expected in 2027 — and people will start spending in anticipation.
So, over the next 24–36 months, you have multiple tailwinds — tax cuts, EMI relief, fuel price cuts, and pay commission expectations — all supporting consumption. And consumption will be less about roti, kapda, makaan and more about experiences — airlines, tourism, hotels.
Do you think uncertainty could also drive people towards gold?
That's already happening. Central banks are buying gold in huge quantities — 1000 tons. Indian housewives / households, too, will support buying to some extent. So yes, we'll see strong support for gold.