How to Invest in India’s Growth Story with Nilesh Shah

Manish Jain: Welcome back to another episode of Bazaar & Beyond! Today’s episode is truly special. We are joined by Mr. Nilesh Shah, Group President and Managing Director of Kotak Mahindra Asset Management Company. He is also the Chairman of the Association of Mutual Funds in India (AMFI), a member of the Mutual Fund Advisory Committee, and a part-time member of the Economic Advisory Council to the Prime Minister. 

This episode is particularly meaningful to me as I’ve had the privilege of learning from Mr. Shah, who has played a pivotal role in shaping my journey. I am Manish Jain, CSO and Director Capital Markets at Mirae Asset Capital Markets, and I’ll be your host for this exciting discussion. Today, we’ll look into several insightful topics such as India’s growth, market dynamics, investment strategies, thoughts on gold and silver, sectors and themes, and, of course, personal lessons that Mr. Shah has learned throughout his illustrious career. 

Thank you for joining us, Nilesh Bhai. 

Nilesh Shah: It’s my pleasure, Manish Jain. Glad to be here. 

India's Growth: From 10th to 4^th Largest Economy 

Manish Jain: Nilesh, you’ve often spoken about India being a global growth engine. India contributes 10% of global GDP growth, and the country’s ranking has moved from 10th to 4th in just one decade. What are the factors contributing to this growth, and what does it mean for retail investors? How can they benefit from this shift? 

Nilesh Shah: It’s truly been a remarkable journey for India. Historically, India was one of the top economies in the world, but 200 years of colonial rule set us back significantly. After independence, various policies and circumstances further hindered growth. 

In 1947, India was ahead of Japan, and in the 1960s, we were similar to South Korea. In the 1980s, we were on par with China. But over the years, these countries moved ahead, and India lagged behind. However, over the past decade, we’ve begun catching up rapidly. In 2014, India was the 10th largest economy globally. Today, we are the 4th largest and could soon be the 3rd. The reasons behind this are Talent, Capital, and Infrastructure. Indian talent, which used to migrate abroad for opportunities, is now staying and thriving within the country. Venture capital has made it easier for entrepreneurs to start businesses. Over the last 11 years, we have doubled our infrastructure roads, power plants, ports, airports, and telecom. These advancements have propelled India’s growth. 

For retail investors, this is a golden opportunity. As India continues to grow, investors can tap into sectors like infrastructure, technology, and financial markets, all of which are benefiting from this economic transformation. 

Market Strategy: Price is What You Pay, Value is What You Get 

Manish Jain: You’ve often compared the market to a test match using examples like Pujara, who is defensive, waiting for the right conditions, and Rishabh Pant, who is aggressive. When it comes to sectors, which do you consider defensive, and which are more aggressive for investors to look at? 

Nilesh Shah: There is a traditional way to categorize sectors as defensive and aggressive. For example, construction is considered aggressive, and FMCG is defensive. But I prefer to focus on the fundamental principle: Price is what you pay, and value is what you get. In an aggressive sector, if you’re paying a low price and getting high value, it doesn’t remain “aggressive,” does it? Similarly, in FMCG, if you’re paying a premium and not receiving much value, then how is it defensive? It’s about the balance between growth and value investing. You can talk about sectors being defensive or aggressive, but you should never limit your thinking. The key is to assess whether you’re paying a fair price and getting the value you expect. 

Manish Jain: That’s a great way of putting it! Often, we limit ourselves by the traditional definitions of sectors. 

Nilesh Shah: Exactly. Look at Sourav Ganguly the Maharaja of Offside. He could score boundaries even if all the fielders were on the offside. But did he limit himself to the offside? No, he played on both sides. Similarly, as an investor, you can’t limit yourself to one style or sector. Play across all sectors and focus on the best opportunities. 

US-India Tariff Impact on Markets  

Manish Jain: The market seems to have hit a plateau, probably due to the ongoing India-US tariff issues. Do you think once the tariff issue is resolved, we could see an upside in the market? 

Nilesh Shah: There are different ways to approach this question. If by "upside," you’re expecting 25-30% returns like we saw in small caps during the pandemic, then we are likely not going to see that kind of growth again in the near future. At Covid, valuations were extremely cheap, and we saw massive returns. But today, valuations are more or less fairly valued. 

Your returns from here will largely depend on earnings growth. Broad market earnings growth cannot be sustained 25% annually; this is something we only see for select companies. As for the tariff issue, if a deal is reached between the US and India, we could see a relief rally. Many foreign investors are likely waiting for a resolution before increasing their allocations. That said, such a rally might not be sustainable over the long term. The bottom line: You cannot predict every event, tariffs or otherwise. Focus on building a solid portfolio of the best companies and letting them play the game. There will be uncertainty, but you can minimize risks by picking the right players. 

AI and Innovation: India is Creating, Not Just Talking 

Manish Jain: AI is a hot topic right now. Some argue that India is falling behind in AI adoption and innovation. Do you think this could affect the IT sector or India’s economy overall? 

Nilesh Shah: There’s a lot of noise about India being behind in AI, particularly when it comes to foundational models like ChatGPT. But the truth is, we’re not behind. Many smart Indians are working hard on AI innovations. For example, India is a global leader in Voice AI, with companies like Maya One and Luna making significant advancements. This success has been achieved with relatively small capital, not the billions seen in other countries. If India continues focusing on creating rather than just talking, we will be a global leader in AI. 

Manish Jain: It’s fascinating to hear this perspective. It’s easy to focus on what we lack, but we should also celebrate what we’ve achieved. 

Nilesh Shah: Exactly. Look at India’s achievements in space, technology, and even rare earth minerals. Sure, there are challenges, but we also have massive untapped potential. As long as we focus on creating solutions, India’s future in AI and innovation looks bright. 

IPO Market and the Power of Optimism 

Manish Jain: The IPO market is booming, with companies raising billions of dollars. You’ve mentioned before that not all IPOs are like Swiggy delivery sometimes, they arrive cold. What’s your take on the IPO market right now? 

Nilesh Shah: The key to investing in IPOs is simple: Price is what you pay, value is what you get. IPOs often come with limited historical data, so you need to do more homework. When you invest in an IPO, you don’t have the luxury of a track record, unlike listed companies. So, your investments in IPOs should be more cautious. You can never be 100% right. Some IPOs might open below issue price buy more if you believe in the long-term value. Others might open at a higher price recheck your calculations and move on if you believe you made the right call. Don’t chase momentum, focus on Earnings Momentum instead. 

Understanding SEBI TER Changes 

Manish Jain: SEBI’s recent consultation paper on TERs (Total Expense Ratios) has raised questions about its sustainability. What’s your take on these developments? 

Nilesh Shah: SEBI’s regulatory approach is commendable. They listen to everyone's industry experts, market participants, and others and then come up with well-thought-out regulations. This level of transparency and accessibility is rare globally. A well-regulated industry grows, while unregulated industries often face challenges. Look at Ponzi schemes; they thrived in the absence of a regulator but ultimately collapsed. Regulation, like the one SEBI offers, is crucial for industry growth and investor protection. 

How to Choose the Right AMC for Mutual Funds? 

Manish Jain: With so many AMCs available, how should investors decide which one to trust with their money? 

Nilesh Shah: Choosing the right AMC is a critical decision. Look at the track record, fund performance, and investment philosophy. An AMC with a long track record of performance and one that aligns with your investment goals is always a safer bet. Also, pay attention to the quality of the research and the type of fund managers they employ. It’s important to choose an AMC that understands market cycles and can manage risks well. 

SIP Returns vs Nifty Returns Explained  

Manish Jain: With SIPs at an all-time high, but the Nifty’s returns being flat, how do you view SIPs from a retail investor’s perspective? 

Nilesh Shah: SIPs are a brilliant way for the average investor to build wealth over time. No one can predict the market's ups and downs with precision. Even Warren Buffett hasn’t always managed to pick the bottom. SIPs allow investors to invest consistently, regardless of market conditions. 

Retail investors should focus on long-term growth. The Indian economy is growing, and even with moderate returns, SIPs will help investors build wealth over time. The key is asset allocation, investing in equity, debt, real estate, and commodities to diversify and hedge against volatility. 

Should You Invest in Gold in 2025?  

Manish Jain: You’ve spoken about gold as an investment, but my wife, Rashmi, has a question: Should she buy gold jewellery now, or should she wait for prices to drop? 

Nilesh Shah: Rashmi, if you’re buying jewellery, buy it when you find the right piece. Gold as an investment is different. Since 2020, we’ve remained bullish on gold due to geopolitical instability and global reserve diversification. However, the price can correct, and gold should only make up a small portion of your portfolio 10-15% depending on your risk profile. 

Nilesh Shah’s Investment Regrets and Lessons  

Manish Jain:  What are some investment regrets you've had, and how would you handle them differently today? 

Nilesh Shah: Mistakes are inevitable. The key is to learn from them. The market is always bigger than any individual, and it’s essential to stay humble. Listen to others, make decisions with an open mind, and learn from your mistakes. This is the only way to succeed. 

Managing Work-Life Balance as a Market Leader 

Manish Jain: How do you balance your demanding career with your personal life? 

Nilesh Shah: At home, I’m more relaxed. But at work, I give it my all. We are the same person, whether in the office or at home. The difference is, at home, I find peace and recharge for the challenges ahead. 

Manish Jain: Thank you, Nilesh Bhai, for this incredible conversation. Your insights will surely resonate with our listeners. 

Nilesh Shah: Thank you, Manish Jain. My pleasure. 

Closing 

Manish Jain: And to our listeners, remember stay invested, stay curious, and keep learning. Until next time, goodbye! 

Disclaimer: 
Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.