Renewed bull run underway, NBFCs and Home Improvement sectors good bets: Stellar Wealth’s Gautam Baid

Well, India has been the mother of all bull markets since the economic reforms of 1991. A new bull market is defined as when the index takes out its previous all-time high. Nifty is on the verge of breaking its previous all-time high. So technically, that is when the new bull market will start.

But it can be clearly seen that a renewed bull run has started in smallcap and midcap stocks, which is backed by the strong corporate India commentary that we saw in the March quarter earnings. A lot of companies have announced fresh capex plans and have given strong group guidance.

There are certain pockets within the market, which are looking extremely bullish at the moment, in particular, the entire lending space of NBFCs, private sector banks, microfinance companies and affordable housing finance companies. Capital goods, cables and wires, hospital sector along with the evergreen contract manufacturing theme stocks are also looking very, very promising.

What is the sense you are getting from the FII community? Foreign investors have made a strong comeback after being sellers for months. Do you think this trend is sustainable now that we are nearing the end of the rate hike cycle globally?

There are three big factors which determine FII flows in the short term, one is the US Dollar Index, the second is the interest rate stance of the Federal Reserve and the third is crude oil prices. As India is a net importer of crude oil it is very vulnerable to crude oil price shocks.

The dollar index has picked off the Federal Reserve's near the end of its interest rate hike cycle and crude has corrected significantly from its all-time high. So, I think that all three big macro factors are in India's favour at the moment and that is why India's become the preferred destination for foreign investors globally.

You mentioned some of the themes such as Home Improvement. Would you tell us which stocks looking good in the NBFC space and the home improvement space that you guys are looking at as a PMS?

When you want to participate in any sectoral bull market, you have to bat the fastest-growing names in that particular sector. For instance, the RBI changed the regulations for microfinance companies last year, and the growth rate trajectory of all the leading companies in the sector has completely changed with most leading players growing at 30-40 percent.

On the top line, regarding Home Improvement plays, instead of buying the real estate developers directly, we are participating in the residential real estate cycle revival through a leading paints company in the smallcap space, which is the fastest-growing listed paints company (India Sirca paints). Full disclaimer, we want it in our India fund and in our PMS.

We also own the fastest-growing laminex player in the listed space. So, we are expressing our bullishness on the residential real estate cycle revival.

In this bull run, what is the kind of strategy one should adopt if they want to be invested for the next three to five years? Should one go for a bottom-up approach and look at quality companies or should one take a top-down approach? What would you advise investors to do?

The strategy which I have observed over the last 16 years of investing is that growth at a reasonable price is the only strategy, which works across market cycles, across economic cycles and across interest rate cycles.

So, this one strategy if you adopt by having a bottom-up approach while keeping the sectoral tailwinds in mind, I think that is a route to success in the stock market.

In addition to this, you have to emphasize two key factors when you are investing in India: emphasis on quality and prudent diversification. This is because abrupt, regulatory and disruptive regulatory changes keep on happening from time to time. The only sense we as investors have is quality businesses, quality management and a prudently diversified portfolio spread across various risk factors.

We should never expose ourselves to single-factor risk. This was a lesson that many investors in the US also got from 2021 till the end of 2022. During these 13 months, the Nasdaq fell more than 35 percent and many technology stocks crashed 60-70 percent.

So, when you're managing money, always consider these factors and be spread across different sectors and focus on quality. Because how much money you're able to recover after a bear market is over is more important than how much paper profit you make during a bull market.