In an interview with ETMarkets, Jain has a cumulative experience of 11 years, said: “We follow a disciplined bottom-up fundamental approach to identify opportunities with growth potential and are available at reasonable valuations” Edited excerpts:
Where do you see markets headed in Smavat 2079?
It is difficult to predict markets and hence rather than forecasting where the markets are headed in the next 6-12 months, we have a more medium to long-term view on the same.
While worsening global macros could hinder growth in the near-term, however, from a long-term perspective, the growth prospects for India look significantly better than most developed economies.
We, at Karma Capital, follow a disciplined bottom-up fundamental approach to identify opportunities with growth potential that are available at reasonable valuations.
This process has worked for us in every market cycle in the last 16 years – be it a range bound market or a bearish or bullish market – and we will continue to stick to the same process.
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And even at the current levels, we feel that there are ample opportunities that offer a favorable risk-to-reward ratio.
Any big factors which the Street must watch out for in Samvat 2079 that could derail the bull run?
Global economic outlook is bleak, with recession looming and inflation running high. With global financial tightening the global economy is in the eye of a new storm.
Global risk aversion remains high with the capital flight taking place. Amid this challenging global environment, economic activity in India remains stable.
CPI remains elevated owing to large supply shocks, spillovers from the global economy, and improving demand. Inflation has risen above the tolerance level.
Acute inflationary pressures have eased but are still elevated. Higher interest rates could have a short-term impact on discretionary spending, however, taming inflation and macro-economic stability is something one needs to watch out for to ensure strong domestic recovery.
Which sectors are likely to remain in limelight in 2079 and why?
From our perspective, telecom, pharma, and media will see significantly strong earnings growth over the next two to three years, if not longer.
We have seen significant consolidation in the telecom sector. The top three players now control almost 90% of the revenue market share.
There exists a huge opportunity because incrementally it is going to be difficult to shake the revenue share of the top two or three players and thus as ARPUs move up as new technologies like 5G are rolled out, the existing players will get stronger and stronger.
A similar trend of consolidation is being seen in the media sector as well. The top three players will control a significant portion of the market as the economy moves from say $2,200 per capita to maybe $3,000 or $4,000 over the next five years.
We think that the media will do very well because a lot of incremental spending will be driven by media and entertainment and these companies are in a sweet spot.
As far as pharma is concerned, we see a strong moat in domestic pharma in terms of secular long-term growth opportunities.
In the last five-seven years, the sector has seen a lot of misallocations of capital to growth opportunities in the US which kind pay off as envisaged and we are now starting to see significantly better capital allocation at least from the top pharma companies in the last two to three years.
Most of the larger pharma companies are debt free and we see them generating a significant amount of free cash flows going ahead.
We feel that pharma is where maybe FMCG was 10 years back in terms of growth opportunity, at least from the domestic pharma business perspective and we see a reasonably long runway for growth there as well.
What is your view on the IPO market for SAMVAT 2079?
IPO activity has been impacted due to various factors including weakening sentiment in the secondary markets, the Russia-Ukraine war, recessionary fears, concerns over inflation, and rising interest rates.
Just to put things into perspective, in the first half of FY23, 14 Indian corporates raised Rs 35,456cr via the IPO route, according to Prime Database.
The amount raised was 32% lower than Rs 51,979cr raised through 25 IPOs, in the corresponding period of FY22. IPO is a once-in-a-lifetime event for a company, and as seen several times in the past, companies would prefer to let their approval lapse rather than launch their IPO in a volatile market.
Moreover, the valuations of several new-age companies that were planning for an IPO have taken a beating in the market as the craze towards start-ups wanes, which could possibly delay their plans to go public.
With a volatile stock market, IPO activity will remain muted. It is a buyer’s market and thus valuation expectations will have to be tempered.
Amid the falling rupee, where do you see gold headed in Samvat 2079? Should it be part of one’s portfolio?
While we don’t have any view on gold, keeping in mind the macro uncertainty surrounding us, it is always advisable to maintain a balanced portfolio across asset classes for higher diversification and better risk-adjusted returns in the long term.
What would be your one portfolio advice you would like to share with readers?
The one piece of advice that I would like to share is to never follow the herd mentality. Herd mentality is quite common. Those affected blindly follow investments made by others without thinking twice. The results can be disastrous.
Note that investments don’t follow a one-size-fits-all approach. Every individual is different in terms of financial goals, risk appetite, and cash flow. Therefore, what may work for others, may not work for you.
If you find everyone chasing a particular stock or fund, you don’t need to do the same. Analyze your financial position and objectives before taking a call. Logic coupled with discipline can help you keep herd mentality at bay.
Your view on earnings – are your earnings improving in Samvat 2079?
Global downturn is clearly deepening, and recession fears are spreading. Global growth slowdown will definitely take a toll on export-oriented sectors like IT.
India, however, is largely a domestically driven economy which should cushion the impact of any recession seen in these developed economies.
The discretionary spending by the Indian consumer coupled with the various government initiatives towards infrastructure and reform activities should drive the growth of the economy.
We see domestic-focused sectors performing relatively better than those having global exposure. Banks, industrials, and consumer-driven companies should deliver strong earnings performance while earnings for sectors like technology and commodities are expected to be relatively weaker.
For our investee companies at Karma Capital, we see aggregate earnings growing at a healthy CAGR of 25-28% between FY22-24.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)