While short-term volatility is imminent, there will be lots of opportunity to invest, says Sushant Bhansali, MD & Head of Principal Investments at Ambit Private Ltd.
Indian stock markets have receded from record high levels in the last few days, even as investor sentiment remains cautious due to various domestic and global factors. While short-term volatility is imminent, there will be lots of opportunity to invest, says Sushant Bhansali, MD & Head of Principal Investments at Ambit Private Ltd. He advises retail investors to focus on sectors which will continue to grow and then find companies which have continued to maintain their competitive positioning in the sector.
Giving the example of Kotak Mahindra Bank’s rise to command a market cap of Rs 2 lakh crore from below Rs 500 crore in 2001, Bhansali highlights the importance of patience in equity investing. “Today’s small and midcap companies have the potential to grow faster than the market and become large cap companies in few years, thereby providing better returns to investors,” he says.
Sushruth Sunder of FE Online recently interviewed Sushant Bhansali, who shares his outlook on the stock market, rupee depreciation, the recent midcap correction and how to identify potential multibaggers. Here are the edited excerpts:
While the Sensex and Nifty has soared to fresh highs, the indices are being sustained by a rally in only few stocks such as RIL, TCS & HUL, while the broader markets seem to be very choppy. What is your near-term outlook for the stock market?
Going forward, Indian stock market will take cues from three factors, political outcome of forthcoming elections, movement in domestic macro-economic indicators and global factors. We are of view that Indian macroeconomic indicators are improving (GDP, IIP and Inflation) and we are seeing good turnaround in earning trends in companies. These should bode well for the market both in short and medium term. On political front, it’s too early to say, but it will bring its fair share of volatility. Any disruption in emerging market due to trade wars will be the other thing to look out for. Overall, we continue to remain bullish on medium-term to long-term with expectation of short-term volatility, which we believe will be an opportunity to invest.
Your website mentions that Principal Investment business identifies turnaround value companies through a detailed investment framework based on research. Could you share a few names which make the cut?
Our endeavor is to identify companies with right management and good potential of growth, and then invest at the right price. Typically these companies are under the radar of institutional investors due to low liquidity or lack of meaningful research. We identify these stocks and wait for an opportune time when we get the right price to invest, which is generally due to short term negative sentiment either in the company or the sector or overall markets.
Rupee has plunged to below the Rs 72-mark against USD. Do you expect recovery anytime soon? Which sectors can investors focus on now?
The current weakness in rupee is more to do with external factors and strong dollar. India macros are currently strong and rupee has remained mostly stable against other basket of currencies, except for US dollar. Again, if we compare with other emerging market currencies, rupee is still outperforming. We are of the view that sectors where import dependence is high will see competitiveness shifting to domestic players. Also given the improved economic environment, consumer demand (especially rural) should be robust. Hence, we are bullish on specialty chemicals and consumption, to name a few sectors. We are also of view that IT Services will continue to do well, as the business momentum is picking up in US and Europe and depreciating currency will add to their margins.
How can retail investors identify potential multibaggers? Could you share a few pointers to be kept in mind?
As a retail investor one should target to create long term wealth from equity investments. One should focus on identifying companies in sectors which will continue to grow (low penetration, premiumisation, unserved customers etc.) and then look out for companies which have continued to maintain their competitive positioning in the sector, generally the top 2-3 in the segment. The other key things to focus on are the integrity and capabilities of management. One needs to assess, whether the business is attractive in first place and whether it can thrive sustainably. However the most important point is what price to pay. An investor should identify such companies and wait for the right price to invest and then nurture it to eventually get above average results.
Where are you finding value in the current stock market?
We are excited about specialty chemicals, where we believe there is great business opportunity for next 5-10 years. We are also excited about niche HFC players who have a robust business model on both sides of the balance sheet.
We have seen a huge correction in the mid-cap and small-cap space in recent times. How are you approaching the space now? What is your view on this space?
This space has become very interesting after the recent fall. We believe there will be opportunities in this space for right companies. Today’s small and mid-cap companies have the potential to grow faster than the market and become large cap companies in few years, thereby providing better returns to investors. The key is however to identify the winners of tomorrow. Kotak Mahindra was less than 500 crore market cap in 2001 and is more than 2 lakh crore now. Patience pays!!
Disclaimer: Ambit and / or its associates do not have any interest in Kotak Mahindra, TCS, RIL and HUL