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Market valuations in fair zone, time to invest in equities: Nilesh Shah, Axis Direct
November, 09th 2011

What is your sense with the way the entire global situation is panning out? We have chosen to ignore what is happening in the globe and seem to be running on steam of our own. Is it time to go out there and invest from a longer-term timeframe?

Nilesh Shah: The one question which we have to answer is how many times you burry the debt. We all know what's happening in Europe and the US. There is no easy solution and probably those countries, continents are going all the way like Japan experienced from 1990 till 2011. Certainly, the world has learnt from Japan and hence the trajectory of Europe and the US will not be exactly like that, but the direction will be exactly like them. Now the question is will people continue to burry the debt again and again or will move on? My feeling is based on the flows in the last couple of weeks in India and talking to the foreign fund investors.

The feeling is that they are slowly and steadily overcoming the ghost of Europe and the US and they are looking at investment opportunities in emerging markets and certainly India will be one of the countries which will be at the forefront having their attention. It does not mean that money will start flowing into India in hordes. Certainly they will evaluate their option and we have our own challenges to address, but certainly people will start moving over from Europe and the US and global problems back to where they think they can make money.

ET Now: For someone who wants to invest in equities not via the mutual fund route, how should they approach this market?

Nilesh Shah: They will have to research on the stock. They can do research on their own or can take help of brokers or websites. Secondly, they will have to develop the ability to buy in a falling market as well rather than buy in a rising market. The markets are going to be volatile, will continue to receive good news as well as bad news on various fronts and the yoyo market, it's far better to buy in the falling market rather than in a rising market. Third, if you can try to buy contra rather than buy the momentum over a longer period of time, probably that's a far better way of making money. So do the homework, buy contra and buy in a falling market. That's the best way to invest in equities on your own.

ET Now: For someone who has managed infra fund in its previous avatar, what are your thoughts on infrastructure stocks? That is one sector where currently there is deep value and deep distress.

Nilesh Shah: Deep value and deep distress are the function of what has happened in the past and both can be wished away if things start working out. In 2008, most of the infrastructure stocks were trading at historically high valuation because everyone hoped that they will continue to grow like technology sector of 2000, getting huge and huge amount of orders. Neither the order flows came nor the existing order could get converted into turnover, nor the expected margins materialised. Today we are in a situation where profitability is at historically low level and valuation as well. Even quarterly results, which have come for September 2011 quarters for whatever stocks, which were there, the result is fairly below expectations even though it was muted. This whole de-rating and de-growth in the profitability of infrastructure sector has occurred as execution has been hampered due to tight liquidity, rising interest rates and also certain execution problems.

Going forward over next 18-24 months, do we see interest rates coming down? The answer is 'yes'. Do we see liquidity going up? The answer is 'yes' and do we see some of the problems on the execution side getting resolved, one, partly because otherwise it will constrain the growth. Second, a poll-bound government will also try to push infrastructure, so there is a reasonable opportunity that if we get our house in order, the interest rates, the liquidity and the order book will all help infrastructure sector. And eventually since the expectations are so low in the infrastructure sector, over the next 18-24 months, you will see a fair amount of outperformance over there. But my only limited submission here is that we will need to take action before this can get converted into prices.

ET Now: A lot of fund managers currently are of the view that it is now time to sell a stock like HDFC Bank, which is trading at a price to book of something like four times based on FY12 earnings and buy an Axis Bank, which is still growing and is available at something like 2.5 times price to book based on FY12 earnings. Is the thinking right?

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