Daily Voice | Focus on businesses that capture these 4 broad themes, says Ritwick Ghoshal of Bay Capital

Every year brings with it some crisis and this year is no different. It's very likely that the second half of the calendar year 2023 will be better than certainly the first quarter that has gone by in terms of equity market returns.

The relative outperformance of the Indian equity market that we witnessed since June last year has diminished since January of this year. With corporate results being generally good and valuations more attractive, this sets the stage for equity markets to do well towards the latter part of FY24.

Do you think the market has fully priced in most of the known concerns now? Do you see any new challenges that the market is expected to face in the new financial year?

The market has priced in the known unknowns. However, as we have seen, there are always unknown unknowns!

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The unintended consequences of the fastest pace of interest rate hikes and the tightening of liquidity conditions in the US can continue to cause a near-term dislocation and this risk remains.

However, as has been seen, through the pandemic and beyond Indian regulators and policymakers have been ahead of the curve and have acted thoughtfully and decisively and so India is therefore much better positioned there.

A possible spike in oil prices continues to be the key near-term concern for India.

Is it the best time to take or increase exposure to technology stocks?

Given the price damage to technology stocks globally and the digital-first names in India, the segment does provide some very interesting opportunities. It is very important for investors to be discerning and not all “technology” names will deliver returns over a longer period of time.

We would make the argument that there are businesses where the core business fundamentals have become better over the last 4 or 5 quarters yet price damage i.e. stock prices are reflecting something else. This is a significant disconnect and therefore we believe these offer exciting opportunities for us.

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There are businesses that are dominant in the segments that they operate in, have a very clear path to profitability (if not yet profitable!), have cash on their balance sheets, and continue to grow – these are the businesses that we are invested in, which can deliver outsized returns from here on.

Overall views on pharma sectors?

As with the technology names, it's important to be discerning about a particular sector and identify high-quality businesses in segments that can compound earnings over a longer period of time. There are segments within the overall pharma space which are indeed interesting.

Any sectors in which you are looking for opportunities to invest?

We are bottom-up investors and are broadly sector agnostic. Our bottom-up work leads us to identify businesses that capture 4 broad themes that are structural in nature – digitisation; financialisaton, knowledge-led outsourcing and consumption.

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Do you see interest rate cuts in the later part of this calendar year globally including India, though experts are mixed in their opinion now?

We don't generally predict macro conditions. However, given the current situation, it's very likely that the RBI will pause before starting to cut rates later in the year.

It's very likely that this will mirror the stance of the Federal Reserve in the US as well which is likely to at least pause on its rate-tightening measures.

Any sectors that you have on your Avoid list?

We don't invest in infrastructure, real estate and commodity businesses.

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