The founder and CEO of Capitalmind, Deepak Shenoy, believes that every fall in the market is an opportunity to buy. However, he remains wary of the highly overvalued FMCG companies. Shenoy believes that a company should grow at 20% on average to command good valuations. Meanwhile, he remains bullish on AI, semiconductor and defence themes for 2026. Edited excerpts:
We have been positive for 10 years running, everything said and done. What explains this, and where do you see the market?
There have been a lot of periods of big growth and then small. To give an example, in 2022 and 2016, returns were less than 5%. There has been a steady performance this year. So, unless you have an event that takes liquidity away, markets don’t go down. And we’ve had very good liquidity in the last uh 10 years. We have not been seriously affected by a lot of things, like the India-Pakistan conflict, tariffs and even the GST cuts. So, the negative news doesn’t affect us badly. The positive news doesn’t affect us majorly.
I would say this has been a difficult year for a person who’s had only theoretical knowledge, but more practically, such years happen when you cannot explain them in that year itself; the visibility of what lasts will happen over a 2-3 year period. The median Nifty stock is actually negative on a one-year basis; the median Nifty 500 stock and small-cap stocks are deeply negative. The rally has been concentrated in the top few stocks, which haven’t gone down too much and perhaps held their own.
To have 10 years of continuous positivity is also not right; at some point, you should expect something negative. That’s just part of life, but that’s because of my bias. I don’t think that the markets will keep going up forever. But I look at every fall as a purchasing opportunity for the future because everything that falls today and is good will give you much better returns tomorrow.
FIIs have sold heavily, while DIIs have been buyers of stocks. What does this explain about the Indian investor?
FIIs are going away, and domestic investors are taking over. The people are putting money into mutual funds. But it was long overdue, as India did not have as much of an investment culture in the long term. The last 3-4 years have actually seen that culture coming, and it’s a structural change. It’s not that markets are high, so let’s invest. Even when the markets are low, people are investing. Even when the markets are falling, people are investing. This is a meaningful long-term way to save our money.
How would you explain the valuations in the market, currently? We are not cheap enough despite the consolidation.
Some stocks are expensive, and some stocks are cheap. Some stocks have forever been expensive, and they are market darlings. Some of the large FMCG companies are ridiculously expensive, and they ought to come down a lot because they have been overvalued. These same companies in their home markets are valued at one-tenth of what they are here, and that’s mostly because there’s not much free float available here. I think those stocks deserve to fall because they don’t have growth. So if you don’t have growth, no matter what your ROE, ROCE is, these metrics don’t matter.
You need to grow at least 20% a year on average to be able to command good valuations. I think there are two camps: one is the expensive but not growing, and the other is the expensive but growing. Expensive but growing will always be expensive to some extent, but the one that is not growing is where you’ll have a problem. When you’re doing the stock selection, you’ll have to choose wisely among which ones you want.
What could be the next big themes for next year? Do you think global focus on AI will remain?
AI will, of course, remain a big theme. Another big thing is EV, and it would become bigger. We are in the early stages, but the amount of private investment happening in semiconductors is crazy. The manufacturing is fantastic there and almost entirely not backed by the government. The one thing the government will be involved in is defence, which will again take a centre stage. Nuclear energy and space tech are other themes to look out for. India is one of the few countries in the world that actually has space tech. And maybe commodities will also remain in focus a little.
Has India missed out on the AI theme?
AI is not lost as a theme. Even during the dotcom boom, we were so late to that party. But guess what? Today, we have one of the largest e-commerce markets worldwide. It’s been 25 years, and we have evolved through this. AI will make its place here; it’s just that we will do it differently and get in slightly later. This is a time when mad investments are happening of sizes we cannot even comprehend. We have limited capital. So, we will do things differently.
We will find our niche in the AI theme, and it will also be huge in India, and there will also be Indian companies that will take advantage of it. It may happen 3 to 5 years down the line, I don’t know! But you have to wait for the bubble to be created in the US. Once that bubble bursts, those investments will be made available to us at a rock-bottom price. When the dot-com bust happened, these investments were eventually available to Indian companies at a low price. Now, the overinvestment in any sector will cause some players to go bust. Then, Indian players can go in and buy those products, the same technology, at a much cheaper price. We should be ready for it when it happens.
We may not be able to put in $200 billion, but if that technology is available to us for $20 billion, we will buy it when nobody else in the world will want it. We are the Lakshmi Mittals of the AI industry. We will pick up things when everybody else is going bankrupt, and that is how it will evolve. It is not a bad thing, but a sensible thing because if everybody’s losing money, let them lose money, and then we’ll figure out.
AI is still a big feature of 2026, but 2026 is too small a time frame. It might take four to five years for this whole thing to evolve.
Do you expect some moderation in the commodity market after the mad rally we have seen?
Yeah, I mean, these are cyclical products. To give you an example, one of the world’s largest producers of gold is Russia, and it has been out of the market for a while. Same for silver, Russia is the seventh largest in the world, and again, it’s out of the market. If there is a peace proposal and that supply comes back meaningfully, there will be a point when we will see major corrections. I hope that will happen in 2026 because the faster it happens, the better, because otherwise people get sucked in and lose a lot more money on the downside.
So you want that bubble to be built because bubbles are the way economies are growing, but gold and silver are non-productive assets. If you thought maybe one year ago that you should sell some gold, now you should because you’re getting a lot more money for it than you were a year back.
People are also storing a bunch of zinc, silver and copper for data centres; I think all of that is going to go bust with the AI theme coming to a head. The commodity prices will correct meaningfully then.
What have been the investing trends adopted by Gen Z when it comes to mutual fund investing? Any advice that you think they should follow?
They seem to be smarter than we’re giving them credit. The younger investor has not pulled out money from the market despite shocks. They have invested wisely by keeping money for longer terms. Today, Gen Z is taking out money from fixed deposits and reinvesting it into the markets because they know markets will come back. One of the lessons that we have to learn from the younger generation is the ability to discern among the 100 opinions available.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
