Opportunity for investors amid markets fall: Here’s what Nilesh Shah has suggested

Because of President Donald Trump’s America First policy and asking investors to invest in the United States, people are committing money there. Trump is also talking about tax cuts, which would mean higher profits after tax (PAT) – which too, is leading to more people to commit investments to the US.

With capital moving to dollars, the USD has been strengthening against emerging market currencies, and that is only adding to the trend from the currency point of view.

Also, since the returns on US high yield bonds are equal to the return on Indian equity, investors feel that they should perhaps invest in US bonds. All of this is resulting in capital going to the US.

It is also important to note that while India has outperformed the developed markets over the past several years, emerging markets as a group have underperformed – and that too, is leading to the outflow of funds from all emerging markets, including India.

On the domestic front, there has been a slowdown in the Indian economy. Corporate results have been slightly below expectations – and they came when valuations were high, and weakened the investor sentiment.

Will the markets fall even further?

Often, markets are driven by flows rather than fundamentals. When they go up, they go above the fair value – and when they come down, they fall below the fair value.

With the fall over the last 5-6 months, the Nifty has now come below its historical average. Even small- and mid-cap stocks, though still above their historical average, are coming closer to the average.

As long as foreign portfolio investors (FPIs) are selling, the markets will continue to fall. They will stop once the selling stops.

It is important to point out that FPIs are selling because there are buyers in the market. Domestic Institutional Investors (DIIs) have been buying as the retail inflow continues.

Are investors continuing with their investments?

High net-worth individuals (HNIs) are more worried as an investor group. But retail investors are investing regularly, so there is more stability on the small-investor front.

What should investors do at this point?

The choice before investors is this: should they join the FPIs and sell their holdings, or should they buy when FPIs are selling.

Following the correction in valuations, expected returns across many sectors have gone up. There is no point selling unless you are heavily overweight on momentum stocks.

Investors should consider investing in a staggered manner, as more corrections may come following the sell-off by FPIs. The return on equity in India is one of the highest in the world, our fundamentals are good, and once the FPIs stop selling, the prices will not remain where they are.

So investors should consider investing in a staggered manner.

And where should they invest?

The market is marginally below the fair value, and it is still not cheap. Therefore, they should invest in a gradual manner.

Investors should go for high-quality stocks or large-cap schemes of mutual funds instead of momentum stocks or small-cap or mid-cap schemes. Even mutual funds have been buying high-quality stocks that are available at a good price.

Also, investors should follow asset allocation, and can look at multi-asset allocation funds, which act as private bankers to retail investors