Market unlikely to give double-digit returns in next 5 years: Nilesh Shah

Nilesh Shah, MD of Kotak AMC, expects the Indian stock market to deliver single-digit CAGR (compounded annual growth rate) returns over the next five years. "The last five-year returns of the broad market were around 16 to 16.5 per cent. With inflation coming down, I believe returns will be much lower than that in the next five years. It's more likely to be in single digits. Real returns unlikely to hit double digits in the next 5 years," the market veteran told Business Today.

"The Indian story is bottom-up entrepreneurship and top-down policy making. Can it be further improved? The answer is undoubtedly yes. We are growing at mid-single digit. But our potential is to grow at a double-digit. As of today, this market is driven by flows as well as sentiment. Yesterday, there was a short covering and the market spiked. Today, we are seeing some amount of selling pressure. Short-term movements are difficult to predict. We believe that while there is a lot of good news for our economy, a lot of it is already priced into the market. Hence, stock selection becomes most important and long-term holding also becomes equally important," he also said.

Shah still believes valuations are compelling in the large-cap space at present. It (valuation) is compelling from a fair value point of view, not from a cheaper point of view. Whereas, the small- and mid-cap, barring a few pockets, still look a little bit expensive. You will have to moderate your return expectation when you're investing at fair value. Indian markets will have ups and downs in the near term but it has potential to reward long-term investing," he stated.

The market expert sees entering opportunity in the consumption sector. "One sector where we are fairly positive is consumption. This year, around Rs 1 lakh crore worth of tax cuts will come in the pockets of taxpayers. They are more likely to spend money rather than save out of that bonanza. There is also potential that petrol and diesel prices may be cut as crude prices have corrected. RBI has reduced repo rate by half a per cent and there is scope for more reduction. This, in turn, reduces the EMI burden for housing and auto loan and personal loan borrowers, Shah said.

"Somewhere towards the 2027 calendar year beginning, the 8th pay commission will put money in the pockets of government employees. I-T cuts, potential petrol diesel price cuts, reduction in EMI burden and 8th pay commission, you have visibility over the next 24 to 36 months of consumption getting supported. Undoubtedly, this is likely to be the consumer discretionary space rather than the consumer staple one. Airline, travel, tourism, healthcare and education are the places where we believe consumers will go to spend," he added.

Shah underscored that there is a potential for India to be rerated despite being one of the most expensive stock markets globally.