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  • Nilesh Shah

    MD, Kotak AMC
    Shah has over 25 years of experience in capital markets. He has managed funds across equity, fixed income securities and real estate. He has studied at the Institute of Chartered Accountants of India. Shah has also co-authored a book - 'A Direct Take'. His dream is to go backpacking with his better half some day.

Look, how a major wealth creation opportunity is opening up for you

A lot of possibilities are visible over the long term. And if things go right, these possibilities may be manifold

Updated: Nov 13, 2018, 03.07 PM IST
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FIIs have sold a net of around Rs 42,000 crore in equities while the net redemption has been around Rs 58,000 crore in debt.
The ring fight between the bears and the bulls is still on. The first three weeks of October belonged to the bears; but the bulls seem to be punching back. From its one-year high, the Nifty is down by around 11 per cent. Much of this decline was triggered by a perfect storm – the coming together of domestic credit crunch, negative systemic liquidity, rising oil prices, high market valuations, hardening US yields and FII selling pressure.

FIIs have sold a net of around Rs 42,000 crore in equities while the net redemption has been around Rs 58,000 crore in debt. In between the two, the FIIs have withdrawn around Rs 1 lakh crore from the Indian capital market this year. The good thing is that mutual funds are still purchasing.

Provisional numbers suggest net mutual fund buying during October was in the vicinity of Rs 21,000 crore.

In a way, FII jitters are partially understandable. One is the increased allocation of mainland Chinese stocks into the MSCI Emerging Markets index – which has added to the rebalancing pressure for FIIs. At that, the US-China trade wrestling has caused widespread uncertainty in emerging markets. This, coupled with rising interest rates globally has prompted a run for safety among FIIs.

The unpredictability of the forthcoming electoral season is further dampening FII spirits. The good thing is that structurally, the economy is moving in the right direction. Direct tax collections (April-September 2018) are up 15 per cent year on year. GST collection for October was in excess of Rs 1 lakh crore. GDP is growing at healthy rate.

Consumer demand indicators (offline and online) remain high and optimistic. The ease of doing business is improving – and very fast at that. All these indicators highlight that economy is on an upward trajectory. Then the question would be, why isn’t there a general boom in the economy?

The answer to the above question is in the capital flow bottlenecks. Much of the capital allocation in the past is stuck in liquidity, solvency or servicing issues. This coupled with aggressive NPA discovery spooked the lending and borrowing activity and jammed credit offtake. Thankfully, we may have begun to emerge out of that problem now.

A meaningful resolution (for banks) to major insolvency proceeding recently has raised hope. At that, the strong regulatory resolve in settling the NPA quagmire has put the onus of good behaviour on the promoters. While it may take time in adjusting, these changes will increasingly create a system that rewards genuine entrepreneurship and helps establish a true knowledge driven economy.

And it is imperative that we transition fast and purposefully, because the world is not waiting for us.

US tariff imposition on China is leading to supply disruptions and opportunities in many sectors. The computers industry may migrate to Taiwan. Electronics may begin to be sourced by US importers from Thailand and Malaysia. Vietnam’s food processing industry may develop a new competitive edge. Cambodian footwear industry, too, may find renewed US demand stimulus and Bangladeshi clothing industry may stand to gain from this standoff. It is necessary that India, too, scramble itself and attracts investment and trade interest. This may be a Y2K-like opportunity for the Indian manufacturing industry. Our manufacturing would do well to not miss this again like we did in the 1980s.

From investors’ standpoint, a lot of wealth creation possibilities are visible over the long term. And if things go right, these possibilities may be manifold. But the short term may still have much volatility stored for investors.

Having said that, investors may be better-off staggering their investment and use dips as a buying opportunity.

From an industry standpoint, while the changing structure of distributor compensation may cause some teething troubles, it may also cause more need for volume-led and/or more advisory-led investments.

In any circumstance, the channel partners have proven themselves to be quite agile and competent in adapting to various changes, and have only grown from strength to strength. We believe that this change will only bring out the better and more sustainable growth over the long term.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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