3 hours Ago
“We think that different stocks and sectors, which are currently not favourites but are significantly undervalued are likely to become the favourites for Samvat 2081,” says Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital. In an interview with ETMarkets, Gupta said: “If India has to grow then the financial resources are primarily going to come from the banks and still these are priced at nearly single-digit PEs, if earnings are rationalized to account for underutilized lending capacity,” Edited excerpts: Thanks for taking the time out. It is turning out to be a volatile October but it looks like Nifty has good support around 24500-25000 levels.
What is your take on markets? Foreign Institutional Investors (FIIs) have been selling relentlessly throughout October. This could be due to going overweight on China due to apparently cheaper valuation, government stimulus and upside momentum. There could be other reasons due to the middle east war escalation with potential to cause spike in crude oil prices and also potentially creating supply chain bottlenecks in the Asia-Europe corridor.
This could potentially trigger global inflation, possibly making the Fed go slower on rate cuts. Further, there is uncertainty from the US elections since the policy differences between the two candidates could be quite high. Stock Trading Dow Theory Made Easy By - Vishal Mehta, Independent Systematic Trader View Program Stock Trading RSI Made Easy: RSI Trading Course By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading Commodity Markets Made Easy: Commodity Trading Course By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Technical Trading Made Easy: Online Certification Course By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading Stock Markets Made Easy By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Derivative Analytics Made Easy By - Vivek Bajaj, Co Founder- Stockedge and Elearnmarkets View Program Stock Trading ROC Made Easy: Master Course for ROC Stock Indicator By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading RSI Trading Techniques: Mastering the RSI Indicator By - Dinesh Nagpal, Full Time Trader, Ichimoku & Trading Psychology Expert View Program Stock Trading Stock Valuation Made Easy By - Rounak Gouti, Investment commentary writer, Experience in equity research View Program Stock Trading Point & Figure Chart Mastery: A Comprehensive Trading Guide By - Mukta Dhamankar, Full Time Trader, 15 Years Experience, Instructor View Program Stock Trading Market 101: An Insight into Trendlines and Momentum By - Rohit Srivastava, Founder- Indiacharts.
com View Program Stock Trading Futures Trading Made Easy: Future & Options Trading Course By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant View Program Stock Trading Algo Trading Made Easy By - Vivek Gadodia, Partner at Dravyaniti Consulting and RBT Algo Systems View Program Nevertheless, as a long-term investor these bouts of volatility provide excellent entry points for new allocations from investors who have been left out so far as well as for further allocations by existing equity investors. While several sectors still remain extremely overvalued, there are pockets of undervaluation emerging. Also, it has been our observation that, typically, in an upside run, the sectors and stocks which go up remain the same until a bout of volatility hits.
Post a correction or crash, the markets reassess and discover new sectors and stocks which become favourites for the next upside run. This is when, typically, the undervalued sectors and stocks are discovered by Mr. Market and value unlocking starts happening for the scientific investing portfolios.
We think that the time to allocate is from now until the US Election results. Post that, the likelihood of markets trending upwards is higher as clarity emerges on the new government. Q) We saw the biggest IPO to hit D-Street this month.
History suggests most of the big-ticket IPOs with issue size of more than Rs 10,000 cr have failed to deliver. What are your views? A) We think that the IPO is priced similar to the existing peers. Given the slow growth in the sector the sector is priced to deliver Nifty-like expected returns.
Remember that this is not a high-growth sector. It is what Peter Lynch would call “Stalwarts”—medium-paced, predictably growing large companies. We think this IPO would also behave similar to other already-listed peers.
We would not expect too much differences. Also, this is not a new company, but has been in business for a very long time and hence a mature business. The cash flows are quite predictable and hence there is not likely to be too much difference in opinion about the valuations.
Q) What is your take on Gold? The yellow metal is trading near record highs, and we are approaching Dhanteras as well. Time to invest in physical or digital Gold? A) There is always some place for Gold in a portfolio, somewhere around 5%-10%. Even if all professional advisers opine that one should not buy gold, Indians are going to buy physical gold during Dhanteras.
And, of course, it is great to follow traditions since it is considered auspicious to buy gold on Dhanteras. As far as more investor-oriented reasoning is concerned, currently, the broad direction of inflation and interest rates is downwards, barring the near-term exceptions cited above. We have just come out of a long and difficult inflationary bout over the last 2-3 years.
Gold makes sense to buy during inflationary periods. Now that we are probably entering a low inflation, low-interest rate regime over the next couple of years, gold is unlikely to be a great investment. A counter argument going around is the money printing and de-dollarisation arguments in favour of gold.
However, in our opinion these don’t hold much water. If we think in terms of decades, we have been, and are going to be, in a deflationary environment with huge excess capacities for most products and services worldwide. So-called excessive money printing is just about stopping deflation from happening if one looks from the long-term perspective.
We are not in favour of too much gold holdings from a long-term perspective. Most households probably have too much physical gold anyway. If one has more than 20% of net worth in gold, one should definitely stop allocating more.
Ideal would be no more than 10% in gold, whether physical or digital, from a long-term asset allocation of the portfolio. From time to time at the beginning of an inflation cycle or during times of large INR depreciation, higher allocations to gold make sense. Q) What are your expectations for Samvat 2081? Any top picks you have on your radar? A) We think this year is going to be another good year for equities markets.
However, professional fund managers are likely to switch favourites. Consumption, FMCG and similar “moat’ stocks are likely to continue becoming more rationalized on valuation basis, meaning the PEs should continue trending downwards as has been the case from the peak valuations over the last two years. Similarly, the highly overvalued pure play defence and some railway stocks and some other current favourites in manufacturing etc.
should become more fairly priced. We think that different stocks and sectors, which are currently not favourites but are significantly undervalued are likely to become the favourites for Samvat 2081. We would not name any specific stocks, but we think that the favourite Defence sector should be looked at differently.
For example, the perspective for Defence sector should be widened to a more geo-strategic view in which wars are fought invisibly and in different dimensions. For example, most of the arms, ammunitions and weapons stocks are overvalued. But if one considers that a geo-strategic view involves, control of economic policies and financial flows, control of merchandise movements (sea lanes and land routes etc.
), or control of strategic resources, such as, Oil, rare earth metals, or the radio waves spectrum, or space, deep oceans, arctic etc., control of people’s movement across countries, strategic locations, Data for AI, cybersecurity etc. then one would be able to create a portfolio with high growth but which is at a significant discount to intrinsic value.
Similarly, one has to move away from overvalued Railway stocks to a broader view of railways as similar to the central blood circulation system of the economy. With the railway network serving as a hub and the other modes of transport serving as spokes for multi-modal transport systems, the national logistics mission and GatiShakti initiative to bring down to costs of logistics from 14% of GDP to 7%-8% provides ample investment opportunities in high-growth companies with reasonable valuations. Q) What about sectors – which sectors are looking bullish till the next Diwali? A) Besides the above two sectors, which require some reorientation in perspective and an imaginative way of thinking in a deeper and broader way, we find the absolute best opportunity across the markets in Indian Banking sector.
Both public and private sector banks, which are the largest sector in India contributing nearly 35% to Nifty. We find it amazing that Mr. Market is negative on this most important sector of the Indian economy.
If India has to grow then the financial resources are primarily going to come from the banks and still these are priced at nearly single-digit PEs, if earnings are rationalized to account for underutilized lending capacity. Today, we face a twin balance sheet opportunity, where the private sector has one of the cleanest balance sheets in decades and the banks have the lowest NPAs and large underutilized lending capacities. Credit growth is happening at mid-teen rates and is likely to happen at a pace higher than the nominal GDP growth rates.
This is because we are at the inflection point of a new economic boom. During this phase the corporates will invest in new capacity building and this will drive credit growth at a faster pace. Another sector which is similarly placed to grow faster than the nominal GDP growth rates is the power sector.
This is being driven by economic growth and the fact that we are moving from low per capita consumption towards the higher per capita consumption of developed economies. Further, the key drivers are likely to be EV adoption which will cannibalize energy consumption from Oil to Electricity. And the largest electricity consumer is going to be Data Centers and AI.
An NVIDIA AI chip consumes as much power annually as a typical American household does in a year. With Indian laws mandating data localization, data centers are likely to become the largest consumer of electricity by 2030. Which brings us to another attractive sector from an AI/Data, Digital Transformation and Cloud perspective, the Indian Technology service providers.
Q) Any sector which you recommend investors to pare their positions? A) As mentioned earlier we are not too excited about the extremely overvalued “moat” stocks from sectors such as, consumption and FMCG. Similarly, overvalued stocks from Defence or Railways or manufacturing are to be viewed skeptically. Q) Big ticket IT firms have declared their results for Q2.
The BSE IT index has risen more than 20% in the last 6 months. What is the sense you are getting from the management commentary? A) We think that there is still uncertainty in the near term. But we think post the US elections and assuming that the middle east war doesn’t escalate further and shows signs of stabilization, the Fortune 500 clients of IT companies will start making decisions on apparently discretionary spending on AI and Digital Transformation.
Once this starts happening, the growth rates should be in the mid-teens to higher. To understand why this is likely to happen, think about why NVIDIA is seeing such high revenue growth rates. This is primarily driven by buying coming from the Cloud platform providers, such as, Microsoft, Amazon, Google and also Meta.
These companies together are investing 100s of billions over 2-3 years, somewhere close to $500 billion. With a fixed asset turnover ratio of about 1, this should translate into revenues of $500 billion annually across the ecosystem. This has to come from the Fortune 500 clients.
But to execute the Digital Transformation and AI projects, these Fortune 500 clients would need to take help from IT service providers, which are dominated by Indian companies. Q) We are getting Rs 24000 SIP every month – a new record from retail investors. Can retail money save us if global slowdown hits D-Street because earnings will take a hit which are already showing signs of slowdown? A) We think the earnings will show a turnaround within the next financial year.
Also, there is no reason for SIP flows to become lower given that the economy is doing quite well. We think that the retail money flows are likely to continue. Nor do we see a significant slowdown in the global economy, except from China.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel ).
