As geopolitical tensions in West Asia continue to keep global crude oil prices volatile, investors should avoid making knee-jerk portfolio decisions based on oil price movements, according to Kotak Mahindra Asset Management Company Managing Director Nilesh Shah.
Speaking with ET NOW, Shah said crude oil prices remain one of the few factors that are largely beyond investors’ control. Drawing a comparison with the famous Bollywood dialogue, he remarked that predicting oil prices is as difficult as understanding the iconic character ‘Don.’
“We have accepted that there’s nothing we can do about oil price volatility. It is a variable outside our control, so we have to live with it,” he said.
Focus on Businesses That Can Weather Oil Volatility
Instead of reacting every time crude prices rise or fall, Shah said investors should focus on companies with resilient business models that can continue delivering earnings growth despite fluctuations in energy prices.
“Our focus is on investing in entrepreneurs and businesses that can withstand this volatility and still deliver growth,” he said.
According to Shah, long-term investing should be driven by the quality of businesses rather than short-term movements in commodity markets.
Contrarian Strategy Works Best in Commodities
Sharing his investment strategy for commodity stocks, Shah said investors often make the mistake of chasing sectors after prices have already surged.
He suggested adopting a contrarian approach in commodities, where buying opportunities usually emerge when sentiment is weak and prices are at cyclical lows.
“When commodity prices are high, company earnings appear spectacular and valuation multiples look inexpensive. That is often the time to consider selling,” Shah explained.
Conversely, when commodity prices hit the bottom of the cycle, companies may report losses and valuation metrics can look unattractive, but those periods often present attractive buying opportunities for long-term investors.
Oil Is No Exception
Shah said the same investment principle applies to the oil sector. While accurately timing commodity cycles is difficult, he believes a disciplined contrarian strategy has generally produced better outcomes over time.
With crude oil expected to remain volatile amid ongoing geopolitical uncertainties, Shah advised investors to stay focused on fundamentals rather than attempting to predict short-term price movements. According to him, building a portfolio of businesses capable of navigating external shocks remains a more reliable long-term investment strategy than reacting to every swing in oil prices.
