"I am very positive about infrastructure, real estate, and banking, but I avoid new-age businesses," Siddharth Oberoi, the Founder and CIO at Prudent Equity says in an interview with Moneycontrol.
He feels the banking sector provides immense growth going forward. "Most banks are witnessing 15-20 percent loan growth. With NPAs under control, reversal of excess provisioning during covid times, we expect the banking sector to perform well," says Siddharth with 27 years of experience in the capital markets.
The RBI has clearly signalled a pause in rate hikes, and the stability in interest rates would help in decision-making at a corporate level. Hence, he believes the markets are headed higher, both due to reasonable stock prices and growth in corporate earnings.
Which sectors/themes can create multi-baggers in the next couple of years?
I am very positive about infrastructure, real estate, and banking.
New projects from large and medium-sized developers have begun selling in a matter of days on the real estate front. As soon as the existing project is sold off, major companies start new phases.
One such business is Ashiana Housing, which declared on April 20, 2023, that they have sold a Gurgaon project for Rs 290 crore and are now announcing their phase 2 launch. The same is true of a few other prominent Indian developers as well.
On a daily basis, we are witnessing scores of infrastructure companies bagging orders. Order books of infra companies are at the decadal high. This is very positive for the next 2-3 years for the sector as a whole. That being said we have learned from past cycles that only a few players emerge victorious from such developments and hence, one has to be very careful while picking stocks.
Banking sector too provides immense growth going forward. Most banks are witnessing 15-20 percent loan growth. With NPAs under control, and reversal of excess provisioning during covid times, we expect the banking sector to perform well.
Should one wait for some more time before taking exposure to technology stocks?
We are in a stock pickers market, as an investor one needs to look at individual technology companies which are outperforming the industry, which seems to be struggling as of now. There are many companies which are doing so handsomely and investors with a medium to long-term view continue to deploy capital.
Companies like Cigniti Technologies and KPIT Technologies have had outstanding financial results. While KPIT increased its profits by more than 30 percent in a very difficult climate for the sector, Cigniti saw virtually a doubling of its earnings during the past several quarters. In the 9M-FY23 timeframe, both of these businesses have already surpassed their FY22 earnings.
What could be the next possible trigger that can take the market to newer highs in the coming months or will it be difficult for the market to see new highs in the coming months?
RBI has clearly signalled a pause in rate hikes. Bond yields have reacted positively. Stability in interest rates would help in decision-making at a corporate level. I believe the markets are headed higher, both due to reasonable stock prices and growth in corporate earnings.
Are you super bullish on new-age stocks?
Since the majority of new-age stocks have underperformed significantly since their initial public offerings (IPO), the thrill of investing in them is gradually diminishing as we proceed further to a stock pickers market than to the broad-based bull market we had over the past two years.
I personally believe in growth and earnings, but these new-age businesses have shown growth more in their capacity to squander investors' funds than in their profitability. Hence, I avoid them.
We have only five IPOs in the current calendar year so far. Do you see a strong revival in the primary market soon, and what could be possible IPOs and fundraising in the rest of the calendar year?
Yes, I believe there is a sizable pipeline of new businesses seeking funding. However, compared to the past, the growth will be rather minimal.
Since the first quarter of 2023 has already passed, several new-age businesses that were anticipated to launch an IPO in 2022 have yet to do so. I don't think businesses like Oyo and Mamaearth will launch an IPO in 2023 either.
What is your stock-picking strategy?
My investment thesis revolves around identifying growth levers in the company which I think are structural in nature. The strategy is totally bottom up. Once I am able to understand the economics of the business, I look at other factors in the company such as management actions, and the company's capital allocation policies among others.
As investors, we are in the business of identifying mispriced bets. With that concept, I try to take out the intrinsic value of the company. The concept of buying lower than its worth or in other words, ensuring a large margin of safety in the purchase price is embedded in my DNA. I ensure that stocks are bought only when they are trading at a substantial discount to my estimated intrinsic value of the company. This ensures that capital is protected to a large extent.
As a rational investor, one needs to have the temperament and patience to sit on cash when an opportunity is not available. That’s exactly what I have been practising over the last 27 years. I wait for a good opportunity and do not shy away from investing substantially whenever such an opportunity presents itself.
Stock that turned the biggest wealth destroyer in your investment journey?
Technofab Engineering & Indsil Hydro have been the worst performers. In both cases, the business took a turn for the worst post the investment.
What is your biggest learning from the recent US banking crisis? Do you expect such kind of crisis in the coming quarters?
There are no lessons to be learned because any cautious fund manager or seasoned investor would have noticed the problems arising in the US-based bank.
The good news is that such crises don't happen often because India has considerably stricter controls surrounding the banking and financial sector.
If the regulator doesn't pay attention to such events and make sure that tougher controls are in place, such crises are certain to occur.
Are the global central banks including India done with the interest rate hike cycle?
RBI has clearly signalled a pause in rate hike. In the US we may see the rate hike cycle to continue.
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