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Business News/ Markets / Stock Markets/  Zerodha co-founder's advice to investors: Wait, don't buy this dip yet

Zerodha co-founder's advice to investors: Wait, don't buy this dip yet

I don't think the time is right yet to ‘buy the dip’, said Nikhil Kamath, co-founder of Zerodha and True Beacon

Nikhil Kamath CoFounder True Beacon and ZerodhaPremium
Nikhil Kamath CoFounder True Beacon and Zerodha

Russia's attack on Ukraine has pushed global as well as domestic stock markets deep into the red. However, Zerodha and True Beacon's co-founder Nikhil Kamath does not think that the recent stock market correction is the right time to ‘buy the dip’ as he believes that equities have not corrected that much yet. 

“Markets haven't corrected that much, they've gone up 100% and come down 12-13%. But in terms of volatility, whenever you see 10-12% corrections, they tend to correct a bit more. So, I would not like to say that it's a good time to buy. There is plenty of news coming out on an hourly basis with this geopolitical tension that is going on. So, I think people should wait, see what happens with inflation and see what happens with the geopolitics of it all. I don't think the time is right yet to ‘buy the dip’," he said in an interview with Livemint.

‘Markets are still expensive’

If you compare the multiples today to any time in our past, even at 16,300, markets are expensive. So, it is very hard to quantify a risk to reward ratio for that. I would say the risk to reward ratio is in your favor when markets are at, you know, 15 PE or 16 PE or something like that, which is not the case right now. Right? So, I would say markets are still expensive, and maybe not the time to equate a risk-reward ratio to how much valuations are.

Also read: Top fund manager on what MF investors should do amid Ukraine selloff

"I think the volatility will continue for a while as I don't think the Russia-Ukraine issue is ending anytime soon, at least not in the next one or two months. In our Budget in February, we accounted for crude to be at around $70-$75 a barrel. It is 110 today, and it looks like it might go to 130-140. If that were to happen, our fiscal deficit number gets totally skewed. Probably, the currency will depreciate a little based on that number. But I would not be surprised if we see a range-bound to slightly negative market over the next six to 12 months," Kamath added.

Gold vs crypto?

I like gold as a commodity generally does well, during times of high inflation. The other commodities, which are more manufacturing linked, you know, like steel and iron ore, and copper, zinc, aluminum, others. If interest rates go up, the demand will probably come down with time, and that might lead for them to correct, but I don't think that will happen this year, but maybe in the next year.

Cryptos is so grey even in terms of regulation, and the impact cost is so high that each time, a large chunk of crypto has to be bought. I don't think crypto markets are anywhere close to that level yet where people can actually consider it a hedge against inflation and invest just because it's so illiquid as a market. If you were to ask me which crypto coin will be around amongst all the choices that you have today, which one will be there 2030 years down the line? I have no idea. 

Also read: Calm before the storm? What Morgan Stanley's Ridham Desai says on stock market correction

As energy is becoming more expensive, I think it will be harder for people to transact in cryptos like Bitcoin, ether. I would assume something new will come along, which will be a little bit more relevant and easier to use inefficient energy-wise than what is available today. But I don't think I would put any of my money in something like Bitcoin, or the equivalent of it, thinking it's a hedge like I might with gold for a 10-20 years outlook. 

Equity mutual funds to look at

One should look at the expense ratios and funds which are cheap. ETFs tend to be a good idea as they have really low-cost management. I would suggest staying away from mid-cap and small caps because when the interest rate cycle goes up, if some companies have to fail, these companies will fail first then the larger companies, which have bigger moats and cash reserves, etc. Investors should stick to large-cap, blue chips and look at expense ratios closely and not pay more than they need to.

Stock selecting strategy

“Asset allocation is important. One should not put more than 30 to 40% of savings in equity. Don't get into any levered product, as markets are volatile and levered products will kill you when those volatility spikes happen. So, stick to large-cap pay heed to expense ratios do not put more than 30 to 40% in equity, and get as much diversification as possible," he advised. 

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Saloni Kothari
Covers markets, personal finance and economy for Livemint and currently hosts the 'Millionaire On A Budget' podcast
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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Published: 04 Mar 2022, 06:31 PM IST
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