Envision Capital's Nilesh Shah On The Best Approach To Navigate Market Volatility

The Indian market may face challenges in the next few months. even though a smooth trajectory was observed in the past six to 12 months, according to Envision Capital Service Pvt.'s Nilesh Shah.

Despite maintaining a positive outlook for India, Shah highlighted the need for equanimity, acknowledging the increased valuations and emerging geopolitical risks that could potentially pose as headwinds to the country's growth narrative.

"So, I would probably say that from a period of optimism, I think this is the time to kind of have some bit of equanimity in us," Shah, chief executive officer at Envision Capital, told BQ Prime's Niraj Shah.

The optimal approach to navigating the current situation is to maintain a long-term perspective and continue to believe in the potential of India and that the country will remain the world's fastest growing large economy, he said. In such a scenario, market reactions may not be in a linear fashion, but they will reciprocate positively over time, Shah said.

According to him, it's important to endure periods of market underperformance. If it temporarily deviates from underlying fundamentals, it is likely to correct itself in a relatively short span, he said.

For retail investors, a systematic investment plan could be one of the best forms of insurance. With the SIP, investors naturally stagger their investments over time, allowing them to navigate market volatility more effectively. This approach enables individuals to invest gradually, mitigating the impact of short-term market fluctuations, Shah said.

Shah continues to focus on businesses that are riding the wave of digitisation. The trend encompasses various sectors, including consumer-centric enterprises, fintech firms and market infrastructure entities.

In the financial sector, the spotlight is on fintech companies. Market infrastructure firms, such as depositories, exchanges and online execution platforms are considered integral to this digitisation wave. He also highlighted business-to-business e-commerce.

"I clearly believe that digitisation is a multi-year, multidecade opportunity irrespective of which government comes in and which government does not come in," Shah said.

There are significant opportunities in sectors driven by capital expenditure and infrastructure development, Shah said. Specifically, he highlighted railways, defence, power and energy as areas with great potential.

"It's just that, maybe wait for some softness. It's quite possible that over the next few weeks, a few months, I don't know when there could be some softness," he said. Shah highlighted that the sector might experience a phase of consolidation.

The third pocket of opportunity to focus on is manufacturing, he said. "Not necessarily electronic manufacturing services, but manufacturing of auto components, consumables, industrial consumables," Shah said.

The entire engineering research and development-specialised place and the product companies are where the growth prospects can be strong, he said. One should continue to be focused on the large IT services companies that operate within this domain, according to Shah.

"Even if you look at the last 10 years, the bellwethers have probably grown at only around 10% in rupee terms. In dollar terms, you'd see it would be even lower," he said. So, the only reason they continue to be favourites is their size and capital efficiency.

"Somebody who's trying to generate alpha for them, the tier-two specialised technology services companies, product companies, is a much better place to be."