Seshadri Sen, Head of Research, Alchemy Capital Management said that investors should not get carried away by the hype surrounding IPOs and evaluate each stock on their merits and test for reasonableness of valuations before investing, he said.
Sen has over 25 years of experience and some of his key assignments in the past included Macquarie Capital, SocGen, ICICI Prudential AMC, and a previous stint with Alchemy.
In an interview with Moneycontrol's Kshitij Anand, Sen said that the new-age companies that are coming to the market offer investors an opportunity to participate in the digital businesses of the future, an avenue that was open only to private markets till date.
Q) Market hit a fresh record high in H12021, and the momentum continued at the starting of H22021 as well. What is driving markets – is it FOMO, TINA or plain liquidity?
A) Markets are being driven by a combination of a) Post-Covid economic recovery driving an earnings rebound, both globally and in India b) rerating of some sectors that are coming out of a multi-year rut and c) easy global liquidity and persistently low-interest rates.
We, however, are seeing the broader markets now consolidating, which could continue given the sharp rally over the last 12-15m.
Q) Retail investors gulped down Zomato IPO in the first 1-2 hours. What is driving the optimism there? We saw record anchor investors, as well as MFs, subscribing to the issue? Is it like a Gold mine which investors will miss in case they don’t get an allotment?
A) Post-IPO returns on many stocks have been strong and that is attracting fresh investors to the markets.
The new-age companies that are coming to the market offer investors an opportunity to participate in the digital businesses of the future, an avenue that was open only to private markets till date.
Investors should not get carried away by the hype surrounding IPOs and evaluate each stock on its merits and test for reasonableness of valuations before investing.
Q) Apart from Zomato there are many tech-based platforms that might be hitting D-Street in H2 namely PayTM, Policy Bazaar etc. among others. What are your view on them? Will they turn out to be the next wealth creators?
A) These are the businesses of the future. Like in all sectors, however, some of them will be wealth creators but there will be a few which will not succeed.Given the rapid change of business models and ever-shortening technology disruption cycles, the risks are enhanced. The winners, however, will be long-term compounders.
Q) Manmohan Singh’s July 24, 1991, budget speech is considered as the harbinger of economic reforms in India. What is your take on that? Do you think the best of the reform years are already behind us and what this means for investors?
A) The reforms of 1991 were undoubtedly a watershed moment for India, its economy and the markets. Reforms, however, are a process and not an event. India’s full potential will only be realised if we continue to reform and remove the institutional obstacles to growth.
Some of the recent measures have the potential to unlock huge growth in the future: privatisation (especially of banks), labour law simplification and agricultural market reform.
Q) Small & Midcaps seems to be surging ahead of the benchmark indices and are trading slight premium to largecaps which has not been the case for long. Does that make you cautious on this space? What are your view and what should investors do?
A) Once a stock passes our basic liquidity filters, we are then agnostic on the size of the stock – we have no clear preference between mid- and large-cap stocks.
However, we would advise investors to take a little more care when investing in small- and mid-cap stocks, as they often tend to carry higher risk.
Q) What is your investment mantra for wealth creation? When did you started investing, and a little bit about yourself?
A) My philosophy is growth at reasonable prices. Over cycles, money tends to be made more from earnings compounding than by changes in valuation multiples.
However, the market does, every now and then, throw up opportunities when cyclical stocks tend to re-rate over a cycle. We are in the middle of such a spell.
I also treat quality as an exclusionary criterion: one should not invest in stocks that do not meet basic quality benchmarks on return ratios, cash flows, and balance sheet risk.
I have been in the markets since 1992, working both on the sell-side and buy-side. A large part of my career has been spent covering the financial services sector, but I have also covered varied sectors such as steel, cement, autos, TMT, FMCG and pharma over my career.
Q) Which sectors are likely to take lead in the second half of the year 2021? Where is the smart money moving?
A) The speed of sector rotation makes it difficult to make such short-term recommendations. In general, we are positive on cyclical sectors such as chemicals, commodities, auto ancilliaries, capital goods and engineering. We also see selective opportunities in financials.
Q) What is your call on IT space – your prefer pecking order between Infosys, TCS, Wipro, and MindTree?
A) We are positive on the IT space. We see a growth opportunity over the next few years that is significantly faster than we have seen over the last half-decade or so. This should support the elevated valuations. Mid-caps and niche players should do better.
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