For investors looking beyond short-term market moves, Nilesh Shah has a simple balance-sheet filter: look for companies with an appropriate level of debt - neither too high nor too low. Speaking on an NDTV Profit town hall, the Kotak AMC veteran said debt can be beneficial when a company's return on equity is higher than its cost of debt. But excessive leverage can work against a company when the cycle turns.
"Debt is a necessary evil," Shah said, arguing that investors should focus on companies where leverage is at an appropriate level rather than simply favouring zero-debt businesses.
Shah also flagged rising consumer indebtedness as a potential pressure point for consumption. He noted that two-thirds of mobile phones sold in India are bought on consumer debt. Higher borrowing costs or tighter credit could therefore push consumers to delay purchases.
If a consumer stretches a mobile replacement cycle from three years to four, Shah said, a significant portion of demand could effectively be deferred. He expects elevated consumer debt to eventually see some restraint through either higher rates or reduced access to credit.
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Nilesh Shah's Sectoral Picks
Shah also highlighted several sectors where he sees opportunities.
Specialty chemicals: He sees the sector's cycle turning, helped by cost-cutting, debottlenecking and rupee depreciation. Companies have also become more competitive after facing intense competition from China.
Pharma: Shah pointed to opportunities in CDMO, APIs and generics, where he said several new entrants are doing well.
Healthcare: He remains positive on healthcare, citing consolidation, rising insurance penetration and increasing healthcare spending.
He also expects spending patterns to shift towards education, healthcare, entertainment, travel and tourism as incomes rise, making discretionary consumption an important theme.
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