Retail investors are similar to Glenn Maxwell, according to Kotak AMC's Nilesh Shah

 Retail investors are similar to Glenn Maxwell, according to Kotak AMC's Nilesh Shah

"Retail investors have reached an extraordinary level of maturity. Investors are asking us pretty difficult questions, so we now need to be totally prepared.

Nilesh Shah said, "Retail investors are currently hitting the balls for 4s and 6s, just like Glenn Maxwell."

Nilesh Shah, managing director of Kotak Mahindra Asset Management, said that retail investors have become more sophisticated and are aware of when to reverse course in the markets. He said that individual investors are more knowledgeable than certain fund managers and that they now pose difficult questions in an exclusive interview with Moneycontrol.

During the previous Samvat, domestic investors purchased more stocks than international institutional buyers, totaling Rs 1.75 lakh crore. international institutional investors purchased stocks worth Rs 1.4 lakh crore. Even if overseas investors have been net sellers over the last three months, local flows have assisted in providing a floor for the markets.

Shah likened Australian cricketer Glenn Maxwell, who led his side to victory over Afghanistan in the 2023 Cricket World Cup with a double century, to retail investors.

"Retail investors right now appear to be Glenn Maxwell, they're shooting the balls for 4s and 6s," Shah said.

Revised passages:

Do consistent FPI inflows have to occur before there is a trade reversal? Or is there a possibility of circulation inside national organizations?

Recirculation among domestic investors is what I wish to see. Instead than investing based on historical performance, investors should consider values. Prices may be driven for a while by fund flows and mood, but ultimately, fundamentals must support it. Time and again, we have seen that equities inevitably correct when they outperform fundamentals.

Thus, profits growth may catch up with smallcaps, microcaps, and minicaps if their prices stabilize for a period. Therefore, time correction is sufficient, and price adjustment is not necessary. I hope that domestic flows are balanced and that FPIs are required to purchase at a 20–30% discount to what they sold.

Do you think that will occur? Because of the shopping frenzy, individuals always base their decision to stay here on short-term results. How difficult is it to fix that?

Right now, retail investors are hitting the balls for fours and sixes, much like Glenn Maxwell. When markets corrected in the past, we used to reassure our investors. Investors are now assuring us not to worry and providing us with more funds to acquire FPIs. It's astonishing how sophisticated ordinary investors have become. Investors are asking us pretty hard questions, so we now have to go well prepared. They query how artificial intelligence is affecting global affairs.

Nobody can deceive the investors, since many of them are more intelligent than we are. Though there are still some beginners, the marketplaces have generally become more experienced. Investors are aware of when to rebalance and when to do a U-turn.

Is this year going to be the year when money stops pouring into smallcap stocks?

While capital will still flow into small-cap companies, it will increasingly flow into large-cap firms.

Is it problematic to invest in tiny companies?

There are a few hazards. Value is the first. We think the cost of several smallcap components has increased. There are still some opportunities, however. Liquidity risk is the second one. Smallcaps have a larger effect cost, and entrance and departure will surely result in an impact cost.

The governance risk is the third. Not every small-cap business has an effective governance structure. It is unusual for anything to go wrong with largecaps. But you may make a mistake with smallcaps and midcaps. As an industry, we really committed a grave error in 2000 when we invested in several fly-by-night businesses. It was fixed by 2008, however. We shouldn't start the year 2024 the same way we did in 2000. Every firm we invest in ought to be a legitimate enterprise with legitimate governance.