Nifty’s valuation not at alarming levels; positive on defence, manufacturing, consumption: Deepak Shenoy of Capitalmind

Deepak Shenoy, the founder and CEO of Capitalmind, believes the real money is in the long game, and investors should think long-term to reap the benefits of India's economic growth. Shenoy says he is positive about defence, manufacturing, premium consumption, financialisation and alternative energy. In an exclusive interview with Mint, he also shares his views on the valuation of Nifty 50 and the strategy one may follow for the mid and small-cap segments.

Edited excerpts:

How do you define 10 years journey at Capitalmind?

When I started Capitalmind, it was built to serve retail investors with tools, education, information about the securities markets, and content for stocks, mutual funds, and bonds.

Over time, our customers asked us to manage their wealth, and we received a SEBI license as a portfolio manager in 2017.

We built it using technology (wealth tech) and kept prices and costs low.

As the PMS has reached nearly seven years in operation and has 2,200 crores in assets under management (AUM), with an amazing team in Bangalore, we have helped our customers build wealth for their long-term goals.

The lessons we've learnt are:

1. In good times, everyone makes money. It's in the bad times that you need the right layer of guidance and handholding to help people react appropriately.

2. Markets are irrational on both the upside and the downside. It's not useful to look for explanations, but it's better to watch market moves first. Don't predict. Respond.

3. A stock doesn't know you own it. Don't get married to your stocks - when it's time to change, you must change.

4. Markets attract a lot of people for the entertainment. Very few stay for the enrichment. Those who do often make stellar returns, but it's slow and boring.

5. As you grow in wealth, spending it is very important. We're always happy when customers dip into their wealth for building greater life experiences, taking a break from work, or just deciding they can retire and live life better.

We have now applied for a license to offer mutual funds and hope to bring more value to those not already wealthy as well.

In the next 10 years, we hope to touch more lives all over the country and beyond to help build their wealth. Onwards, and upwards!

What is your short-term outlook for the market? Is Nifty 50 fairly valued at this point?

Let's cut to the chase - in the short term, predictions are about as useful as a chocolate teapot.

The market's a wild beast in the short term, driven more by sentiment and cash flows than any rational valuation metrics.

Right now, we're seeing foreign investors playing hot potato with Indian stocks - big money coming in one day, rushing out the next. It's like watching a high-stakes game of musical chairs.

Now, about the Nifty 50's valuation - we're looking at a P/E of around 22 times. Is that too high? Too low?

Honestly, it's like asking if the price of a tomato is fair - it depends on who's buying and who's selling.

In the grand scheme of things, 22 times isn't setting off any alarm bells because it's been higher and much higher in the recent past.

But here's the kicker - for short-term moves, that number's about as relevant as last year's weather forecast.

If you must play the short-term game, you'd be better off analysing price charts and technical indicators.

It's not what you want to hear, and it's probably out of the syllabus for this question today.

But if you're asking me, the real money is in the long game. India has a bright future ahead of it, and that's where smart money should be looking.

What drives this relentless gain in the mid and small-cap segments despite valuation concerns? What should be our strategy for these segments?

Let's bust a midcap bubble myth here - these gains aren't coming out of thin air.

Over the last five years, we've seen some serious earnings growth in midcaps. It's not just hot air and speculation (though there's always a bit of that in any market).

Now, are some of these stocks priced like they're the next Bajaj Finance?

Absolutely. But here's the secret sauce - you've got to be ruthlessly selective.

We're talking about picking companies that can consistently deliver 20-30 per cent growth year after year. If you find those gems, paying a premium makes sense.

It's like buying a Ferrari - expensive, but you're paying for performance.

But let's be real - not every mid or small-cap stock is a hidden champion.

A lot of them are priced for perfection, and perfection is a tough gig in the business world. So, what's the strategy?

First, do your homework. I mean really dig in - understand the business, the market, the competition.

Second, diversify. Don't bet the farm on any single stock, no matter how good the story sounds. And third, be patient.

These high-growth stories take time to play out.

Remember, in the mid and small-cap space, you're often betting on potential rather than proven track records.

It's exciting, sure, but it's not for the faint of heart. You've got to be ready for some wild rides.

What is your view on the growth-inflation dynamics in India? Can RBI cut rates in October?

Inflation is taking a nap right now. We just saw a number below 4 per cent, like finding a unicorn in Indian economics.

It's good news, no doubt, but let's not pop the champagne just yet.

Growth, on the other hand, is a mixed bag.

It's not exactly setting the world on fire across all sectors, but in the global context.

We are the darling of the party. India's growth story is still intact, and that's something to be excited about.

Now, about the RBI cutting rates in October, I wouldn't be able to hold my breath.

Sure, inflation's behaving itself for now, but the RBI's got trust issues regarding inflation staying low.

They've been burned before, and they're not likely to jump the gun. Here's the thing - we're not an economic island.

The RBI's going to be keeping one eye on what the Fed does. It's like a global game of monetary policy chicken, and nobody wants to blink first.

We'll see the US start their rate-cutting party before the RBI joins in.

So, October? Probably not. But keep your ear to the ground - things can change fast in this game.

There are concerns over signs of a slowdown in the US economy. Should we be worried?

Yes, a US slowdown would be a big deal. It's the world's largest consumer economy, and when Uncle Sam catches a cold, the rest of us start sneezing.

That's just how the global economy works.

But here's the thing - right now, talks of a US recession are more like a bearish person's fantasy than steeped in reality.

Sure, they're spooky, but are they real?

The data isn't screaming "recession" just yet. Job numbers are still solid, consumer spending hasn't fallen off a cliff, and the housing market, while cooling, isn't in freefall.

Now, I'm not saying we should ignore these concerns. Being prepared is always smart.

But let's put things in perspective - people have predicted 30 of the last two recessions. Economic doom-saying is practically a sport in some circles.

If the US does slide into a recession, yeah, we'll feel it.

Foreign investment flows might get a bit choppy.

Some sectors, especially those tied to US consumption or outsourcing, might see some turbulence.

But remember, India's got its own economic engine.

We're not just a sidecar to the US economy anymore.

The short-term impact may be negative, but the short-term is not the long-term and, often, the exact opposite.

So, should we be worried? Stay alert, sure. But panic? Nah.

Keep your portfolio diversified, focus on growth and governance, and remember - in every economic winter, there are always some flowers that bloom.

Do you expect a significant rate cut from the Fed this year?

Crystalball gazing about Fed moves is risky, but let's give it a shot. If the US economy keeps showing signs of slowing down, I'd expect the Fed to start getting trigger-happy with rate cuts.

They've been talking tough, but when push comes to shove, they don't want to be the ones who pushed the economy off a cliff.

But here's an interesting wrinkle - the US Treasury's been doing some fancy footwork lately.

They're issuing more short-term bonds, which is effectively injecting liquidity into the markets. It's like a backdoor rate cut if you will.

This could give the Fed some breathing room to hold off on official cuts for a while.

The market's pricing is some pretty aggressive cuts for next year, but I'd take that with a grain of salt.

The Fed's been burned by inflation before, and they're not likely to throw caution to the wind.

My take? We'll probably see some cuts, but the timing and extent are anyone's guess.

The smart thing to do is to stay flexible and ready to pivot as the situation evolves.

Why are FPIs again on a selling spree in the Indian market after buying for two consecutive months?

First off, let's pump the brakes on this "selling spree" narrative.

If we look at the numbers, foreign portfolio investors (FPIs) actually became net buyers in July - we're talking about +32,000 crore in equity and +15,000 crore in debt.

Sure, we've seen some outflows in August, but it's not exactly a mass exodus. Now, why are we seeing these outflows? It's like trying to psychoanalyse a herd of cats.

There's always a cocktail of fears driving these moves - worries about a US recession, geopolitical tensions in the Middle East, and concerns that India's growth story might be losing its shine.

But honestly, this is par for the course. There's always something to worry about in the markets.

Here's the thing - foreign investors are notoriously fickle.

They move in and out based on global factors that often have little to do with India's fundamentals.

It's like they're playing a global game of musical chairs, and sometimes India's the chair they choose to sit in; sometimes it's not.

My advice? Don't lose sleep over FPI flows. Focus on the long-term story.

India's growth trajectory, its demographic dividend, and its expanding consumer base are the things that matter in the long run.

FPI flows will come and go, but if you're betting on India's future, these short-term movements are just noise.

Markets have seen strong volatility this month so far. How do we navigate this volatile market?

Let me let you in on a little secret - markets are supposed to be volatile.

It's not a bug; it's a feature. This year, we haven't even seen a 10 per cent drop in the Nifty. That's not normal - it's abnormally calm.

Here's what everyone needs to understand: volatility is the price of admission for potentially higher returns.

If you want the roller coaster highs, you've got to be ready for the lows, too.

Every year, you should be mentally prepared for at least a 30% drop.

If that thought makes you break out in a cold sweat, well, there's always the comfort of a fixed deposit waiting for you at your friendly neighbourhood bank.

But for those who can stomach the ride, here's how you navigate volatility:

Diversify: Don't put all your eggs in one basket. Spread your investments across sectors, market caps, and even asset classes.

Focus on growth and (lack of) leverage: In choppy waters, it's the sturdy ships that survive. Look for companies with strong balance sheets and large, growing, addressable markets.

Think long-term: Day-to-day fluctuations matter less when you're investing for years, not months.

Reducing the timing pains: invest regularly as your cash flow allows you to, rather than bunching it together for one big move in. The worst time frame to have to decide to invest is every single day.

Remember, just because the ocean's calm today doesn't mean it won't be stormy tomorrow. But if you're prepared, you can weather any market conditions.

What sectors are positive about for the next one to two years? Is it time to shift focus to value from growth?

In the near term, value stocks have had their moment in the sun. But looking ahead, especially as interest rates potentially come down, growth is where the real action is going to be.

Here's my hit list of sectors to watch:

Defense: With geopolitical tensions rising, this sector's got tailwinds and then, the government's willing to spend.

Manufacturing: 'Make in India' isn't just a slogan anymore. We're seeing real traction here.

Premium Consumption: As incomes rise, so does the appetite for the finer things in life.

Financialisation: More Indians are entering the formal financial system. That's a massive opportunity.

Alternative Energy: Reducing import dependence on crude oil is crucial, given the geopolitics, and one way to do that is to go the solar, wind or nuclear route.

Now, about growth versus value - it's not an either/or situation. Smart investors play both sides. Value has its place, especially in uncertain times. But in a country like India, with its massive growth potential, you can't ignore growth stocks.

Here's the catch - picking tomorrow's winners today isn't easy. That's why diversification is key. Spread your bets across these promising sectors. Some will falter, sure, but the ones that take off could more than makeup for it.

One last thing - patience is crucial. The market doesn't always recognize growth immediately. It takes time for these stories to play out. So don't expect overnight miracles. Plant your seeds, water them regularly, and give them time to grow.

Remember, investing is a marathon, not a sprint. Stay focused on the long game, and you'll be well-positioned to ride India's growth wave.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.