you can buy everything when you invest in good company and create wealth. All credit to him as I was a novice, God was kind, I got an allotment in the IPO.
That allotment today has compounded at around 30 percent since last 27 years. I have practically experienced this eighth wonder of the world, courtesy my dad, who is my inspiration in life & investments.
I am also an ardent Warren Buffet fan. The word durable competitive advantage has stayed with me forever. I study & practise behavioural finance extensively which helps me to tide over the difficult phases in markets.
FIIs have also joined back which is giving further legs to the party on D-Street. Is it FOMO or attractive growth outlook which pushed FIIs back towards Indian markets?
Right from the Russia-Ukraine war to rising inflation, to rising interest rates to crude & commodities hurting our economy & Companies, we saw it all.
All these global factors led to a severe round of FII selling amounting to nearly a historic 33b$ in the last 9 months.
Current financial market turmoil is a fund flow issue due to external shocks like financial tightening in advanced economies and war led disruptions. All these pushed FII ownership in Indian equities to a low of ~18% (close to a 5-yr low).
At some point, earlier than later, the valuations started to look attractive. While inflation & interest rates can still come & haunt the economies & markets, but a confluence of factors including low valuations, oversold markets, the fall in commodity prices etc helped markets to move northwards.
As the selling was ruthless, so was the buying and hence the rally which makes it look like a combination of strong growth prospects of India along with not missing the bus.
What about valuations? How are we placed when compared to other EM countries?
The valuations at 15200 -15500 levels of Nifty were very attractive for Indian markets. Be it P/E of 15.2 (FY24 consensus EPS of 1000 for Nifty), Price to Book Value or Market Cap/GDP.
After the recent rally, valuations have of course risen, but the quality & quantity of earnings growth will now come to the fore.
There is a strong demand scenario along with much elusive capex plus a number of tailwinds in the form of lower commodity prices along with crude returning to sub three figure mark.
The input cost pressure seems to have come down than what was expected a quarter earlier. Along with that, strong pricing power was exhibited by most of India Inc during these tough times, which augur well for these companies & their investors.
There has been a consistent under performance along with de-rating for Chinese economy & markets over the recent past.
China plus one along with a definitive shift towards world recognising India’s strengths, manufacturing boost, political stability, reform intent & policy continuity make India command some premium in the emergingmarketbasket.
What is your view on telecom and allied stocks after the recent spectrum allocation?
Telecom sector is the lifeline or the backbone of the digital economy that the government is trying to make. The DoT is already working on more relief measures that would ensure that there is an ease in conducting business for the telcos.
There is a likelihood of pricing power coming back to the sector as price hikes seem to be not as tough as in the earlier scenario & average revenue per user (ARPU) levels is expected to go up further.
With 5G arriving soon and the demand for wireless connectivity services going up both in the retail as well as enterprise space, there's likely going to be a boom in the revenues for the operators.
While the telcos are going to roll out new networks and then products and services related to it, their debt level is also going to go up.
It won't hurt the two major players a lot because both of these companies can deleverage pretty fast. There are several infrastructure and tech companies as well which are directly involved in the telecom sector. One has to be very selective here as the sector is highly capitalintensive.
Domestic themes have done well if we look at the sectors which participated in the rally from 50,000-60,000. Do you see the trend in favour of economy favouring sectors to drive the next leg of the rally?
We remain optimistic on the upcoming festival season and good monsoon-led rural demand. On the sectoral front, BFSI looks slated for high growth for the next few years. Banks & NBFCs can be beneficiaries of high credit growth, capex & economic recovery.
Insurance on the back of improving penetration & density plus coming out of pressure pf pandemic claims and Intermediaries like exchanges, depositories will benefit from the huge wave of growing financial & equity cult.
Apart from discretionary & non-discretionary consumption space, capex beneficiaries like cement, capital goods, automation, technology etc. and also Agro & Specialty Chemicals should find its way in investor portfolios.
Building materials or home improvement has been our favourite since some time & we continue to stay positive here.
From 52-week low in June the trend reversed in quick time. What would you advise investors to do at current levels? Top up existing MFs, buy stocks which are trading at fair value or lighten up positions?
We are always advocates of Time in the markets is more important than timing the market. History has proven that your return reduces drastically in the longer term, if you miss out few best days in the market.
There is always a denial in terms of the longevity & the texture of rally after such a large fall & people call it a relief rally or bounce back. But more often than not, it turns out to be the resumption of bull run.
However, due to increasing number of moving parts, the safest strategy is to invest in tranches so as to benefit from volatility. One should continue to invest gradually be it MFs or good businesses.
We continue to like our approach of buying market leaders & emerging market leaders, which create & multiply wealth in the longer term.
In our recent revisit to substantiate our views, we found that these companies have improved their return ratios, gained market share in difficult environment, have generated superior returns in the past few cycles & are also expected to post high earnings growth over the next two to three years.
One should invest in such companies and create a portfolio which will stand the test of time & difficult circumstances in the market.
The broader market is still far away from its peak. Does it make sense to catch the fallen knife? If market rebounds, there are higher chances of some activity in the small & midcaps as well?
More than the market correction, it was stock prices which corrected by 15-50 percent across the board for mid & small caps. In this environment of high inflation & interest rates, as bottom-up stock pickers we look at companies with dominant market share & high level of corporate governance standards, huge opportunity size in their respective sector along with margin of safety.
We feel that rather than focusing on the market cap, one needs to focus on whether the company is a sector leader and have qualities which of superior return profile, moat & the business model which is either disruptive or can’t get easily disrupted.
There are a good number of mid & smallcaps which would create wealth over the long term but will bring in a fair share of volatility in the interim. The trick here is to not get carried away by hearsay & tips, but to do one’s due diligence or consult a professional and then invest one’s hard earned money.
Will EV turn out to be a decadal theme? Companies associated with manufacturing of EV vehicles could see some strong price action. What are your views?
Unfortunately, there are not many listed plays so far to play this theme. With time, a lot more choice will be available here. Yes, there are now automakers who derive a part of their revenue from this stream.
I think the beneficiaries here will be companies that operate in allied industries & also companies laying down the infrastructure for the implementation of the Electric Vehicle revolution.
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