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Nikhil Kamath, Co-founder, True Beacon speaks to Mint on his outlook for the equity market in 2022.
What is your outlook on the stock market for 2022?
I don't think the valuations of today are justified. There is plenty of momentum and capital, which seems to be finding its way into the equity markets. So, it's tough to take a binary call, but I will say, I would err on the side of caution. And I believe that markets to be a bit more expensive than they should be.
India's first silver ETF will be launched tomorrow. How do you view silver as a commodity?
I'm a fan of commodities, especially in the current cycle. These act as a good hedge on the overall inflation that we are seeing today. Gold retains value better than currencies and other investments like fixed income and stuff. And in a very euphemized manner, it acts as a short bet against the crypto world of today. I think whenever cryptos have a bad time, gold will become increasingly popular and very fast.
Will the shift from value to growth continue?
I'm not a fan of growth too much. I believe in value over the long term. Immaterial of the market cycle, there is a right price for every kind of company. To factor in future growth in today's prices, is not something I've been a fan of even if something is growing it 100% Today, people are valuing it like it will continue to grow at 100% for the next decade and giving it attribute in that value today itself. I don't think that is fair, there are a lot of sharks that could come along the way. And I think you have to discount for these sharks and value these companies a bit more modestly than many of the new IPOs and companies which have come into the market have been valued at.
What are the big risks for the market in 2022?
Inflation is a big issue, not just here, but across the world. The actual yield on money today, if you buy a risk-free bond or savings account, or even a fixed deposit is negative. That has driven a lot of money to equity in the last one or two years. The only tool the RBI has is to increase interest rates. And they will have to start doing that at some point soon. When they do that, the already strained NPA picture will probably get exponentially worse because we've just come out of covid. I think that's the first big risk. The second one is the fiscal deficit. Nobody seems to be looking at it in the manner that they should. Last month, we had the highest deficit in about 14-15 months at about $15 billion. Our net reserves as a country are around $600 billion. But you can run out of that reserve very, very quickly if you keep running minus 15 billion every month. I think that's a systemic risk. The third thing, I think, is covid. We are complacent about covid in India. I don't know how long the lag is going to be this time, but maybe Jan, Feb March, whenever it's going to hit us and it's again going to slow down the economy. I don't think they accurately factored in all the risks at hand. The funds that we run are about 50% hedged even today. I think it'll be an interesting year, but I don't think it'd be the crazy bull run we saw last year. I don't see that.
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