“I am a bit worried about what will happen to retail investors who made money so quickly when the same is not repeated next year. So many people have gotten used to an unbelievable pace of rally and they will have to readjust the goal post and look for things which are far more reasonable,” says Nikhil Kamath , Co-Founder & CIO , Zerodha .
How are you feeling going into the New Year as far as markets are concerned?
Nikhil Kamath: I feel like we are kind of walking into the New Year from a very elevated position. The market in terms of valuations to multiples is very expensive today. There are two or three big issues that everybody needs to pay heed to. The fiscal deficit numbers are worrying at $15 billion a month. If that trend were to continue, it would put a lot of pressure on our currency even though our reserves are so high along with inflation – which pragmatically seems to be much higher than the number being reported. Then there is the new Covid variant which is affecting so many different geographies that I do not see any reason for India to be complacent. the third time around and believe that it will not come here.
These things, in culmination, will cause significant turmoil in the market in the next year. One should be cautious, especially considering the lofty valuations that we sit on today, and I would not like to call it a barrier. It is a year of circumspection. So many people have gotten used to an unbelievable pace of rally and they will have to readjust the goal post and look for things which are far more reasonable.
Do you think it will be particularly tough for the newly inducted retail investors who had hopped on to the equity bandwagon seeing the phenomenal returns in 2021, to adjust because there is a reality check on so many things including the whole IPO buzz?
Even if you were to consider a 3-4% volatility in November and December, considering the magnitude of the rally, that is not right in terms of a correction. The problem for a lot of the new investors who have come in in the last one year is the fact that they have made money so quickly. A vast majority have profited from the stupendous bull run that we witnessed in the market and for these people to readjust expectations might not be easy.
I am assuming it is harder for someone to walk into the market and suddenly make 40-50% returns and then continue to have the resolve to make returns which is one-tenth of that, maybe 5% and continue to remain rational when that happens. I do not know if it will work out in that way. I am a bit worried about what will happen to retail investors who made money so quickly when the same is not repeated next year.
What do you think are the big headwinds that India faces? Do you think things like inflation, consumer demand which is improving perhaps not at the pace that is required, a lack of private investment will continue to hamper the growth and recovery that India is hoping for?
The three issues which I mentioned are largely on top of the list in between inflation, us doing bad fiscally and the new Covid variant. The three together will determine sentiments to a large extent. There have been symptoms like the FIIs taking out money in the last couple of months and that trend seems to continue. From the people I talk to, it does not seem to be about foreign institutions turning bearish on India. It seems that they are more often kind of reallocating their exposure to India and taking it down from pockets where the exposure had gone up considering the historical average. They seem to be rebalancing India downwards and adding exposure to China and other countries again. But these three issues may be the focus of at least early and mid next year.
On the positive factors that people are talking about is expecting corporate results to continue being robust, expecting economic recovery and demand to continue improving steadily in India. Even if Omicron cases grow, do you think these factors will help mitigate some of those dark clouds on the horizon as we go into 2022?
We are looking upon more headwinds today than tailwinds especially considering valuation today.
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source Nikhil Kamath’s advice for retail investors – adjust your expectations for 2022
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