While there's no immediate threat of a taper, signs of a stock market correction in India are evident, according to Vikas Khemani. Yet, he finds the domestic market at the cusp of a long wealth-creation cycle.
“It is only natural for the markets to worry about the tapering cycle given the unprecedent level of liquidity,” co-founder of Carnelian Capital Advisors told BloombergQuint's Niraj Shah in an interview. “But till the time the U.S. Federal Reserve saw a structural revival in demand in the economy, a big, sustainable taper remained unlikely.”
Yet, Khemani sees a “mini euphoria” in markets, citing retail participation and irrational buying, without adequate research, into businesses with low-quality managements and penny stocks. These are signs of a correction, he said, but no one can predict timing.
“One does not know whether the correction will come at 17,500 or 16,500,” Khemani said. “If you get another 10% correction from 17,500, who knows? Markets tend to surprise always on the upside.”
Still, according to him, the pick-up in India's capex cycle would lead to wealth creation and he has no plans to tinker with the portfolio amid fears of a correction.
India is in a very, very long supercycle. Corporate earnings have just started to pick up. There are many new drivers which have historically never existed for India. When you have this kind of set up, in my opinion, it is futile or waste of time to optimise for 5-10% correction.Vikas Khemani, Founder, Carnelian Capital Advisors
Navigating Risks
Khemani identified three types of risks for markets. Type A—a risk of losing 80-100% capital emerges from bets on inferior-quality of managements, according to him. But it can be eliminated by maintaining discipline, prioritising research and resisting temptations.
Type B is a mark-to-market, volatility risk, a feature of all the bull markets. The pandemic exemplified such a risk which emerges from unexpected, uncontrollable sources.
Type C is an opportunity loss, a risk that emerges out of investment or asset choices. It stems from pre-determined notions and biases and can be avoided through knowledge and research, he said.
But investors, Khemani said, spend most of the time on managing type B risk, which is often beyond the control of the investor.
While Khemani would not tweak the portfolio because of a few months of underperformance, he said he would not hesitate from removing a stock the moment the growth and risk-reward went out of favour.
Watch the full interview here:
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