The Hindu Business Line : Signs of less volatility emerging: Kotak MF

The RBI's move to raise rates should provide some stability to the rupee, he says. Large part of selling is coming in from retail, leveraged players, but most funds have not seen significant redemptions, he said.

Excerpts from CNBC - TV18's exclusive interview with Nilesh Shah:

Are you a bit surprised to find the markets where they are now and do you reckon we could be headed even further down?

Yes surely, the correction is surprising and obviously it has been really triggered by a meltdown in most of the emerging markets world over and a different stand, which investors have really taken world over in terms of their likely course of action on interest rates or currency movements. A lot of investors worldwide have perhaps reacted to that. Having said that in the process what has really happened is that the India story has really taken a back seat.

Where is the selling coming in from?

A lot of selling is coming in from retail investors or leveraged players. While, of course, in May a lot of the excessive futures and options positions could have kind of got squared off. But, a lot of people just probably recouped the losses or have compensated for losses to pay up the margins and are still selling their positions in the cash market. Having said that what was evident yesterday at those 5-10 per cent or maybe even 20 per cent lower levels were a fair amount of buyers.

One could see a lot of stocks getting traded at those lower levels, so it is quite possible that the investors who are taking a bit of a contrarion view on this current environment have actually stepped in to buy. A lot of selling has come in from retail individual investors.

Do you see even more significant downside from here on in the mid-cap universe?If at all there is any downside in the mid-cap segment, then that would probably be because of technical reasons, because of a set of investors who just want to completely exit that segment. From a stage of complete euphoria or complete belief we have got into a stage of disbelief.

A lot of them have come down to single digit PE multiples or slightly at those 10-12 PE multiples. The brave hearts can use this kind of an opportunity to buy whenever they see value in the midcap segment.

We have gone back to January levels, how high would you rate the chances of the markets going back to October levels?

The October high was perhaps at 8900 and normally October was around 7600-7700. If we were to talk about 8800 as a starting point, now we are at 9250, so we are just 400-500 points away from that kind of positions and that is something, which cannot be ruled out in a situation where the volatility is as high as 4-5 per cent.

What is it going to take to reduce that volatility because global factors have been less than benign for us?

In this kind of an environment it is hard to guess as to when actually the volatility will stabilise. If one looks at the emerging market, in the last 3-4 days there has been a complete slide but today most of the emerging markets have given up their gains or have come off their days high, but surely they are not down 3-5 per cent today.

We have reached a situation where most of the indices are either flat or are down 1-1.5 per cent. Probably we are getting into a situation where the volatility could start coming down but it is not going to happen overnight.

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