Nilesh Shah: Markets Look Fairly Valued, but $100 Oil Could Shift the Correction Picture

Nilesh Shah, Managing Director at Kotak Mahindra AMC, was asked a plain question in a Moneycontrol Daily Voice interview: does the current market setup give reason to expect a correction? His answer was that one should never say never, since unforeseen events can trigger one. But on the information available, he said, valuations look fair and the downside appears limited.

The main exception he named was oil. A spike to triple-digit prices, he said, could alter the picture significantly. Without a shock of that kind, he argued, the setup does not strongly signal an imminent broad correction. He listed other risks that persist, including geopolitical tensions, commodity spikes and weather anomalies, but his overall read of India's fundamentals was constructive.

The weather risk he singled out was El Niño. In his view, concerns are already largely discounted in current pricing, and early signs of the phenomenon are visible. The danger would come if it turned out worse than expected and cut the monsoon by more than 10 percent of the long-period average. That, he said, could bring additional downside for agriculture, inflation and broader growth. He called vigilance warranted, but said markets have priced in a baseline scenario.

On banking, Shah declined to give a simple preference for large private-sector banks over public sector ones. He described the answer as nuanced. Some PSU banks, he noted, have performed remarkably and trade at attractive valuations, while large private banks have faced heavy selling by foreign portfolio investors, with certain numbers falling below expectations. His view is that opportunities exist bottom-up across banks, NBFCs, insurance, capital markets and asset management companies, and that selective exposure driven by fundamentals matters more than broad categories.

He was also asked about the FCNR(B) scheme, which he called highly attractive for investors outside India willing to take measured risk. In a low-yield world, he asked, where else can one get double-digit dollar returns, albeit on a leveraged basis, for India risk over the medium term? Attractiveness alone, he cautioned, does not guarantee inflows. Resident Indians, he pointed out, have historically parked more money in depreciating cash than in mutual funds despite decades of strong equity returns. For NRIs, he said, success will need proactive outreach and leverage, and the investment process for overseas Indians has often been cumbersome, so improving ease of investing is critical to unlocking significant forex inflows.

Asked whether global investors underestimate India's capacity to absorb higher energy prices, Shah said they are astute, have the same data as everyone else, and face no meaningful information asymmetry. That capacity, he said, is well understood and reflected in analyses, though outcomes depend on actual price trajectories. Lower oil prices would give a meaningful boost to the economy, consumption and corporate margins.

Shah accepted that India is increasingly seen as an AI hedge trade, which he called positive, but said the country is much more than that. He pointed to sustained growth, improving governance and structural reforms as the broader foundation for long-term confidence.

On earnings, he expects the September quarter to be significantly better than recent ones. The June quarter, he said, absorbed hits, particularly from oil marketing companies. If oil prices stay relatively low, that should pave the way for a stronger September quarter and support market sentiment.

He credited India's resilience despite the energy crisis and multiple headwinds not to abstract forces but to entrepreneurs and ordinary Indians who refused to give up and kept investing. His advice to investors was to focus on bottom-up selection, keep asset allocation discipline, and treat India as a multi-year compounding opportunity rather than a tactical trade. The things to watch are the path of oil prices, the monsoon's strength against that 10 percent threshold, and whether the September quarter earnings rebound arrives.