Zerodha’s Kamath says rebalancing mkt expectations good, sceptical of new tech cos

The selloff has been on account of a combination of factors, with concerns over inflation – both global and domestic – geopolitical tensions, elevated crude oil prices and the prospect of higher US interest rates being the key factors weighing on investor sentiment.

Amid the volatility, Nikhil Kamath, Co-founder, True Beacon and Zerodha, is of the view that a rebalancing of investor expectations is beneficial and that viewed through the prism of the extent of gains notched up over the past year, the recent phase of losses were like a “tiny drop from the top”.

“So I think some kind of a rebalancing of expectations is good. If the markets were to, may be, settle at… 14,000 or 15,000, I think would be par for the course in the longer run. I do not think that is something that one should worry too much about,” Kamath said in an interaction with ETMarkets.com.

After losing close to 300 points in early trade Tuesday, the Nifty50 recovered and was last at 17,217.75, up 0.40 per cent.

Kamath bases his view on a few fundamental market drivers, key among which is inflation. Globally, inflation has emerged as the key area of discussion in financial markets as central banks seek to adopt tighter policies in order to rein in soaring consumer prices.

With inflation in the US currently running near 40-year highs, the clamour is increasing for the Federal Reserve to act soon, perhaps sooner than expected. Back home, India’s CPI inflation, while within the RBI’s 2-6 per cent band, remains well above the central bank’s medium-term target of 4 per cent and data on the ground show that firms have started passing on higher prices to consumers.

“Inflation being the number one issue, I think crude prices going up like they have is terrible for India,” Kamath said.

Kamath also pointed out the state of government finances and the real picture on GDP growth as broader factors for investors to consider.

“If you look at our fiscal deficit numbers last month at 14-15 billion dollars we have had the highest fiscal deficit that we have seen in maybe 15 months in India. That is something one should worry about definitely and also in terms of earnings the last quarter to be fair has not been great. A lot of people are talking about how India is growing at 9 per cent or 10 per cent GDP, but people fail to realise that that is not in comparison to 2018 or 2019 which were actually bigger years than 2021,” he said.

With India, of late, becoming relatively more expensive when compared with emerging market peers in the region, the recent trend of foreign portfolio investors reducing their holdings of local equities could continue, Kamath said.

FPIs sold a net amount of Rs 38,521 crore worth of Indian equities in the last three months of 2021, NSDL data showed. So far in the current month, overseas investors have net sold Rs 11,866 crore, the data showed.

TECH DAMP SQUIB

Speaking of specific areas of risk, Kamath expressed a pessimistic view on some new entrants in the technology space.

“I have been sceptical of the new tech companies for a while now, companies which are reporting losses of Rs 2,000 crore. All these companies tend to have a pattern. The year that they go for IPO, they reduce expenditure and show a lower loss than one is normally accustomed to looking at,” he said.

Notwithstanding this practice, if such firms were to continue suffering losses to the tune of Rs 2,000-3,000 crore a year, justifying market capitalisation in the zone of Rs 70,000-80,000 crore would be difficult, Kamath said.

He also pointed out the fact that the technology space was already quite crowded, with several cash-rich entities present.

“…These are not monopoly businesses. There are other players. There are players with deep pockets like if you talk about Nykaa, there is Amazon. If we talk about Zomato, there is Swiggy. Paytm has UPI; there is a lot of competition in the sector. So I would be circumspect about pricing these companies like tomorrow has already occurred,” he said.

Kamath also advised investors to be careful of deploying funds in very expensive firms during episodes of severe volatility.

“All the traditional stocks like Bajaj Finance, DMart, Jubilant and all these companies which have got ridiculous multiples today even though they are extremely well run… I think one would be better off shying away from these really expensive companies when things get bad.”