Winning Strategy For Today's Markets | Shyam Sekhar

Added: 2026-05-22

[00:00:10]Markets are showing a lot of nervousness in May after making confident and rapid strides in April. The prolonging of the war, oil prices remaining elevated, and bond yields across the globe going up seem to be some of the key reasons.

[00:00:28]What's in store for the markets and how should investors approach this scenario?

[00:00:33]To discuss all this and much more with us, we have Sham as always in the next episode of Decode with Sham Shaker. Hi Sham.

[00:00:42]>> Hi.

[00:00:42]>> Hi Sham. We started uh Decode uh with the very same topic almost. How should you invest for a macro reset?

[00:00:51]>> Uh at that point in time it was the first phase of the war and market was markets were nervous. Now April changed everything. We are back uh to the nervousness again. So what is uh different between then and now or what has changed?

[00:01:05]>> I think the macro reset has moved a few steps ahead.

[00:01:10]First you had the oil supply shock with the beginning of the war.

[00:01:20]Then you had price shock.

[00:01:22]Now we may even see demand shock.

[00:01:25]This is one side. This is what we discussed the other day. But now you have the bond yield shock that has come into the market and I think uh bond yields are signaling something very serious because it's happening across the world.

[00:01:43]It's not Indiaentric.

[00:01:46]So when bond deals move like this globally, a country like India which is an importing economy which constantly needs flows of capital foreign currency from outside becomes more vulnerable. So today if you ask me the vulnerability that we see today is much higher than what we saw when we started speaking about the macro reset.

[00:02:13]That's very clear.

[00:02:16]So we are going to see pressure on the exchange rate which in turn will put tremendous pressure on the interest rate. So the government now is slowly coming to a place where it has to respond and that response comes at a very heavy cost the economy which would mean that we would see growth moderate. We already see expectations being brought down to six.

[00:02:42]>> Yeah. I won't be surprised if it goes even a tad lower depending on the government response and how it is received by the world by global investors.

[00:02:55]Then we will see the recovery in our macros.

[00:03:00]>> So the weakening that we are seeing today will get arrested and then we'll see a gradual improvement in the macros.

[00:03:08]This is the scenario that we are gradually moving towards.

[00:03:11]As we move towards this, I think that there is a lot of heavy lifting an investor has to do. So earlier the problem has been that you have one crisis code and a prolonged recovery from it. So the recovery was fairly predictable and uh it was not marked by too much of uh unforeseen events.

[00:03:41]But now I think we are at a place where predicting anything has become a problem. You can only say that the macros are becoming weaker that a lot needs to be done which is more a diagnostic view.

[00:03:56]>> You analyze and you say that this is what I think needs to be done and as it gets done you have to again adapt your investment view to the new realities. So I cannot think the same way I thought on Jan one.

[00:04:12]I cannot even think the same way I thought on March one. I need to change my thinking and I need to change it only where it needs to be changed. It's not like you're going to junk all your investment ideas or you're going to change your entire portfolio upside down. That's not what I mean. Where necessary. You need to review and revise your investment judgment and your positioning.

[00:04:34]>> Okay. So do you mean that we have to prepare for more downside or the the pessimists would look at it like that whereas the optimist would probably expect a postcoid rally.

[00:04:45]>> See I'm an optimist who likes to prepare for a downside. That is my positioning always in the market.

[00:04:52]Broadly I know that uh we tend to overcome the downside whenever it happens. So I don't want to be pessimistic about the downside.

[00:05:04]But downside always throws opportunity >> and if you are pragmatic and optimistic in a measured way you will use that opportunity. I think an investor must always use opportunity.

[00:05:20]That's how I am viewing this.

[00:05:22]Interestingly in 2012 there was far more pessimism all around than today in the sense the people who are pessimistic mattered.

[00:05:33]It is not a collective opinion of the masses. It was not a herdriven pessimism. It is a very precise and precient pessimism. Somebody was saying hey this is not looking good. So even that people like me tried to use it pragmatically with the measured optimism so that we are able to do a few things right at that point in time and those few things delivered tremendously.

[00:06:03]Are we in a position to repeat that?

[00:06:08]Well, in terms of returns, I don't know whether we'll be able to repeat the same outcome, but definitely I would believe that we would be able to directionally do the same thing.

[00:06:20]Correct.

[00:06:21]>> Directly, we should be optimistic. You must be pragmatic in a measured way. You must translate your optimism into investmentations in your portfolio. You need to make very precise moves in your portfolio and all that should deliver a very good outcome for you >> when we come out of this crisis.

[00:06:44]>> The only thing that we cannot predict today is the time duration that you need to wait.

[00:06:50]>> Somehow I think investors are still preparing for that.

[00:06:54]>> Mentally I am ready for that. I would think that I would give two years of time for Indian stocks and Indian businesses to do better on the valuation front.

[00:07:07]>> Okay. So essentially when we look at a scenario where bond yields are rising, equity investors as you had mentioned earlier need to reset their expectations. Now what is a typical mental reset or a portfolio reset that is required when you see a high bond deals and expected rise in interest rates?

[00:07:26]>> See when are bond deals spiking? When people are completely unwilling to invest in debt as an asset class.

[00:07:34]Bond is continuously signaling to you that look at debt as an asset class but nobody wants to look at it. Why do people not want to look at debt as an asset class? Because of the lopsided taxation. That's one primary reason. And the second thing is people think that making money in equity is a given.

[00:07:53]In my experience as an investor, it is never a given.

[00:07:59]Jan one, you thought that equity was the best class.

[00:08:04]May one, it looked very vulnerable or even April one, it looked very vulnerable.

[00:08:11]This vulnerability will keep on presenting itself before us and uh it will test our resolve as an investor. Bond deals are nothing but like a thermometer. It keeps on warning you that uh something is not all right. Now as an equity investor I have to take that indicator and go into my portfolio and keep looking where I need to correct myself.

[00:08:45]>> If I need to correct myself I need to do it in a timely way. I think that that is what I keep telling myself in this scenario.

[00:08:53]>> This is the change. I'm open to that but at the same time I am not going to take drastic asset level views. Oh, equity is not going to perform at all. So, I'm going to reduce all my equity or I'm telling people to not invest in equity at all. That's not the point. Equity always presents certain sensible opportunities before us and it is up to us to keep investing in those sensible opportunities. When you have bond yields threatening the macros of our economy, those opportunities become even more attractive because somebody may be throwing away those assets and going to debt. So I would think that those opportunities should be uh viewed on a constructive basis not with the bias at the asset level. This is not the time to hold asset level biases at all.

[00:09:43]>> So if debt is going to become more lucrative, I would think slowly people should mentally condition themselves to building some position in debt over the next few weeks or months.

[00:09:58]If equity as an asset class is going to look weaker, you need to strengthen your exposure to equity. You already have a portfolio, go inside that and strengthen it.

[00:10:09]>> So this is like a workout type. It's like you need to be gming in your portfolio, >> working out and making the portfolio more stronger. I mean more resilient, stronger and uh building the right muscle power in your portfolio.

[00:10:29]>> Now for those who expect a quicker recovery uh in the markets, what seem uh to seems to be driving their view is the fact that macroeconomically we seem to be much better placed in terms of whatever numbers everybody is watching than what it was in 11 or 12 or 13. So how would you uh look at it? See macroeconomically we were much better off on Jan one and suddenly March one change everything today you're around late May so I don't know what it'll look on June 1 July one so it's almost looking at the macros one month at a time you have the expectation of a super elino coming up >> that can further give our macros stress if the rains fail or don't meet expectation.

[00:11:21]>> Right now you have a below expectation monsoon prediction.

[00:11:28]>> So all this will further stress the macros. So as an investor I think that you know I would think this can be as bad as 20113 and I'll prepare for a situation or scenario where it may even get worse >> because if it doesn't get to us and my mental preparation is so high when I see opportunities when I see risks I'll respond to everything correctly. It needs the mental preparation to get out the right response. I would think response now is going to matter much more than it mattered in the last 6 years.

[00:12:08]>> Most people are not mentally ready to respond. That's my sense because they're looking at returns and complaining, cripping, so many things. When the macro recent happens, it won't listen to your complaints and cribs. You have to adapt.

[00:12:24]You have to do a few things right. It's like you go and get a diagnostic report on something. It tells you there's a problem. You can't complain on what some food somebody gave you six months ago, what happened, why you went here, somebody told me to travel here, that's why I picked up the bug. You can't do all that. You have to go and treat yourself.

[00:12:43]>> Likewise, you have to do what is right in your portfolio. I don't see any merit in uh what about in uh blame games in uh trying to externalize your mistakes.

[00:12:59]None of this will work.

[00:13:00]>> I think one should have the humility to take stock and fight this situation in our minds first as an investor. And if you are advised by somebody also you have to now go and learn how to trust that person and act accordingly.

[00:13:16]>> Okay Shan. So if we uh look at data in April now if the nifty went up by uh say seven or eight percentage points but if you see the mid and small cap indexes they were like they moved up double that. Now uh we also see inflows into mid and small cap funds continuing into April continuing to look good. So uh do you think that uh you know investors are looking at it as you know a correction in the valuation excesses which were there you know at that time when uh the markets peaked in September 2024 or do you think investors are looking at it as you know the reset uh will be over soon and then they would benefit so what is the approach or the mindset of these investors in mid and small cap funds >> largely I would say it is habitual buying >> I don't think people are looking at the valuation >> every single day before they put money into this category, >> they're not looking close enough. As an investor, my experience has been that uh when you do habitual buying uh when a category is coming from extremely overvalued to overvalued and then you continue buying very aggressively from overvalued down when it comes towards fairly valued.

[00:14:33]This is contingent. Succeeding at that is contingent on the macros improving.

[00:14:38]>> If the macro improves then even if you made mistakes in habitual buying. It gets covered >> by a macro reset.

[00:14:47]>> Favorable macro reset.

[00:14:50]>> Now you're having an unfavorable macro reset and you just mindlessly buying continuously.

[00:14:55]You're buying overvalued stocks because they came down 10% 20%.

[00:15:00]This is happening directly. People are going and buying these stocks directly.

[00:15:03]they're also going through the mutual fund ecosystem.

[00:15:07]Now, if you keep on giving capital, the manager has to buy something. So, he looks at which is the least overvalued in his universe or portfolio and he's putting some money there provided it allows uh for proper portfolio construction principles to be maintained. So, this is what is happening.

[00:15:28]Now if the macro reset is favorable to the companies in that particular manager's portfolio then you will not have reason to complain or worry but I would think predominant opinion is concentrated in certain companies which are going to be affected by the micro visit.

[00:15:48]Let's say you're buying some companies because they are fast growing based on certain sectors of economy like defense, construction, various things.

[00:15:57]Now these are all B2B businesses. If you see where the valuation has extended beyond normal or where it is very stretched, >> you'll find a lot of B2B companies in this not even B2C. So when you overdo B2B as a category within small cap or midcap and then the macro reset happens then directly or indirectly the government is a buyer of these companies and if the government has to spend four lakh cr extra this year >> just making up the petrol diesel LPG subsidy as things stand let's say they pull it back they can still not pull it back below two lakh crores in my opinion >> because all these hikes >> will only lesser the pain for the government.

[00:16:44]So effectively what would happen that money would not be available for these companies because their budgets which they are selling into if you're a defense company you're selling into a defense budget. The budget is there but expenditure won't be there. If you if you're an infrared driven company you're selling into the infra allocation which is >> very high. Suppose they don't spend one two crores then you are going to be directly affected. So this gradual moderation is going to happen in these companies.

[00:17:16]>> You have set yourself up that it's going to be an upward trend. That's a slow downward trend.

[00:17:22]>> And there is no visibility when this will stabilize, settle and reverse.

[00:17:27]But you are waving as if there is no problem. The investor behavior is as if it's come 10% down. It's cheap. It's come 15% down. It's cheap.

[00:17:37]>> It's only a price based judgment.

[00:17:41]>> It's not a fundamental based judgment.

[00:17:44]It's not a value based judgment.

[00:17:46]>> My basic problem with what is going on in small and cap is it is not respecting the macro reset. It is relying mostly on price based judgments and it is assuming that a reversion to mean in prices is a given.

[00:18:05]I don't think it'll be easy when prices fall from extremely overvalued to overvalued and further down.

[00:18:13]I don't think it'll be easy.

[00:18:15]>> My lessons from history suggest that once it goes below overvalued all the smart guys try to get out first so the mutual fund will sell. So you look at extremely overvalued to overvalued. You are complaining about an IPO like cut.

[00:18:31]>> It went to extremely overvalued. From there it has come to overvalued. Now the selling of all the smart guys is happening. You are seeing that >> I'm taking one example. I have nothing against lit cut almost all the overvalued companies will see this.

[00:18:47]All the so-called strong hands will suddenly throw their hands up >> and the transfer of these equities from very strong hands to not so strong hands which is happening in midcap and small cap >> has further ramifications. It has got more consequences waiting to happen.

[00:19:06]>> So the cycle in this is changing. That's my sense.

[00:19:11]>> Okay. So I have nothing personally against any company but when this cycle turns in this way as an investor I am taught and conditioned to respect the change not just blindly do the same investment actions repetitively so that is my view on small and midcap that is where my positioning on that category comes from so it's not that I'm against the category either within that there will be some value contract opportunities is there'll be a few things you can do. I of the view you should do those things gradually.

[00:19:45]>> Okay.

[00:19:45]>> But you cannot go and buy a 120p stock which has come down to 80 saying it has become cheaper. Similarly, a stock which fell down to 50p has gone back to 90p. You can't assume this expansion that happened in April as some kind of validation of any investment belief. It is misbehavior of liquidity and whenever liquidity misbehaves there's only one stance I would want to take and that's a cautious >> whereas I'm not seeing that amongst the herd who are die hard believers in small and mid-size companies because they completely divorced from macro >> pure bottom up micro and always trying to judge what is the right PE and trying to validate or justify a PE which is difficult to justify >> justify >> this is what is going on I mean who does it is hardly the issue but broadly this is what is going on and my experience is that this won't end well >> especially when macros are not in favor >> okay the other uh theme which uh everybody is looking at right now in terms of uh you know global globally a lot of things is being uncertain and the theme which probably would work out for us is domestic consumption because as we all know uh private consumption is more than 60% of our GDP. Now do you uh look at domestic consumption uh coming out as a savior uh in this phase you mentioned two years so in this phase would domestic consumption be a savior because we are looking at high inflation scenario also >> two years I think domestic consumption will come out as a savior your question was very cleverly worded I would say one year it is a challenge so two years it will come out well one year is it a challenge when one year is a challenge and two years you will be all right then the challenge is clearly an opportunity. This is my view on domestic consumption.

[00:21:54]>> Uh a super elino will put pressure on domestic consumption. It'll put a pressure on consumption centric businesses. However, I would think that all the efforts that the business takes during such a tough year always delivers superior investment performance always delivers superior business performance and by virtue of the business performance being good the investment performance >> improves. All this happens in the second and the third year.

[00:22:28]So today if you are consumption facing and you gradually become more consumption facing over the next 12 months and you take precise decisions and you make precise choices within the consumption basket then when inflation comes under control when the macros improve when the companies take corrective steps to counter this inflation and the market absorbs these steps >> demand will again come back >> after a brief blip. When demand comes back, that's also around the time inflation starts going down. Then suddenly their earning spreads and you'll see earnings growth gaining speed momentum.

[00:23:13]I would think that in consumption using the next one year of adversity is a no-brainer.

[00:23:22]It's fairly straightforward because you will not have two bad years for agriculture. giving an example >> and by the time I think our macro tough decisions would have been taken assimilated economy would have absorbed them and economy would have moved on and good news also would start flowing in the second year since the macros will improve >> and all this will again create a window for us to invest and once that window shuts macros start improving again I would see your performance again go higher >> in your investing So that time window is not as long as people like to believe.

[00:24:01]Usually consumptiondriven u opportunity windows are 12 to 18 months not longer.

[00:24:10]>> The last uh question for this episode is on something which we've already spoken about but maybe more specifically the viewers would like to know. So would you think a top-down approach would work today or a bottom up approach is better?

[00:24:26]>> When you start as an investor, you think bottom up is enough. Bottom up approach is sufficient.

[00:24:35]The moment you grow beyond a certain size, you see what the top down changes do to your bottom up investing. So you say why should I ignore it?

[00:24:45]>> You start respecting it.

[00:24:48]When you start respecting it, you realize how top down investing can improve your bottom up investing the transition slowly. So respecting top down investing is an absolute essential. Respecting macro helps you become a better investor. It helps you see things which you otherwise fail to see. It helps you see things which your peers refuse to see. It puts you at a far better vantage point from which you can see the future. That's very very important.

[00:25:24]By respecting the top down trends, you get a better vantage point. From that vantage point, you start seeing the future better. When you see the future better, you see how opportunities will play out in specific companies and how the future will be better for specific companies. Then you assess whether the valuations are in your favor in specific companies and where the valuation look very very inviting.

[00:25:50]Then your investment decisions come at you.

[00:25:55]In pure bottomup investing people are chasing decisions. When you take a very strong top down view and then look at industries from a bottom up perspective the decision chases you. I would think that if you use top down and bottom up approaches sensibly, you will be better placed to invest in companies where that investment decision to invest is compelling and not something which you chase out of the fear of missing out which is what pure water of investing has become in recent years.

[00:26:32]>> So I think that the top down approach will be very very critical right now.

[00:26:37]for investors who want to fortify their portfolio, position it better for a economic slowdown and then again gradually change the positioning for a revival. So it's a phase where you are going to be seing you know gradually turning your position in your portfolio and gradually altering your future expectation going from caution to cautious optimism to positivity to high optimism. So this journey will have to be made and without a top down >> view >> view which is pragmatic >> and not biased by politics and what you think about uh geopolitics and all that >> you keep everything at the back of your mind and form >> a view >> and use that view sensibly and constructively in your investing. That is what I think somebody needs to do right now rather than you know keep on complaining that there are no returns look at the rupee it'll go to 100 whatever it can go to any number and then talking about how FIA should be brought back all these armchair >> uh advice or research must be set aside and you have to look at what is the emerging top-down economic scenario how it affects the bottom of uh investing and how your bottom of investing can get the most out of your understanding of the top down economy.

[00:28:14]So you have to align very cleanly. Uh the people who align now will get very very interesting investment choices in equity.

[00:28:21]>> I am of that firm view.

[00:28:24]Those who align will have a very pedestrian approach to investing and the outcome will be very basic.

[00:28:32]>> Uh sometimes it can be negative also. I would like investors to follow the right approach now.

[00:28:38]>> Okay.

[00:28:39]>> If you do that, I think the learnings will be enormous. So we followed the right approach between 2008 and 2011 and after that only we are making the investment actions very aggressively.

[00:28:52]So it takes time to learn, it takes time to assimilate, takes time to prepare and it takes time to respond to emerging economic scenarios. It's not like you can do it at a touch of a button.

[00:29:05]>> You need to internalize it so strongly.

[00:29:07]Then the companies will come at you and say, "Hey, I'm not as much affected as the market thinks I am. Please buy me."

[00:29:15]Right now, all the money that goes into small and midcap is chasing companies which have fallen off a cliff. It's like catching falling knives. it is not yet going towards companies which have fallen long ago and more or less static which are waiting to take off. So I think that directional flows of money within small and midcap is a problem. I see this problem not going away so easily and I see heavy financial costs in portfolios which deal with this problem wrongly. So all these things must be remembered by the investor.

[00:29:52]every time he just wants to buy a small cap or a midcap stock because it has fallen off a peak 20%. Even after 20% fall from a peak a stock would be very very expensive and not yet investment worthy is something I want our investors to remember.

[00:30:07]>> Okay, that was very well put I should say wonderfully explained.

[00:30:11]>> Thank you. I guess this was a very timely episode uh for our viewers on how they should uh reset uh their portfolios and their behavior based on uh the changing or the fast uh developing macroeconomic situation. Uh please put in your comments uh definitely it will help us uh do better and uh see you next time in the next episode. Thank you.