Companies having promoter integrity, high sector tailwinds, sales and profit growth sustenance, margins improvement are must to have which is what our 5GCPM framework focuses upon.
Edited excerpts:Q) A volatile week for Indian markets as Nifty retested support at 11200 and then bounced back. What led to the price action on D-Street in the week gone by?
A) After a rally of 4000 points on Nifty, some correction can’t be ruled out. The main reason for volatility was the delay in the vaccine trials, Crude going below $40/bbl and NASDAQ tech stocks correction.Large caps are trading well above their 5-Year Average multiples and contribution to rally by top 3-4 stocks is way higher than others.
The new multi-cap norms have been introduced last week which will also have their effects though there is a timeline for changes to happen.
Q) Where should investors place their bets now?
A) Companies having promoter integrity, high sector tailwinds, sales and profit growth sustenance, margins improvement are must to have which is what our 5GCPM framework focuses upon.
So there will be such companies going to be picked by fund managers. Bulk drug and API companies like Aarti drugs gave us 3 times returns. Now, we are focusing on some catalyst changes and triggers in ICICI Securities.
After the launch of the prime plan subscription, a new set of revenue has come. Also, the company has moved beyond ICICI Bank account compulsion. Also plans to sell other company health insurance. Account opening has become online and easier.
Whenever a company goes cross-platform and doesn’t restrict its products on just one type, it rewards business well. On trustworthiness, ease of access, and customer service most investors would rank it as no 1.
With 48 lacs plus customer base 65% plus of which at least 5-year-old shows is that discount broking could not do much to its market share. Recently it launched the US investing platform too which is a new product and territory as per our 5GCPM growth and practicability.
We think levels of 650 are possible in the coming 4-6 months for this 50% ROE and 50% operating margin broking Platform Company.
Q) What is your call on markets for the coming week? Which are the important technical levels that one can track?
A) Horizon for any stock as an investment should be at least 2 years. There can be corrections in Nifty 5-7% too from 11500 but not necessarily all stocks can correct. After each great rally, some breathing has to happen.
It should not bother an investor as long as it does not have very sharp deep fall possibilities with some great worries and uncertainties.
There are specific opportunities that can keep on rising like in 2015, where Nifty had a good correction, but we still had other themes such as tyre stocks, auto ancillaries, plastics, or some high growth branded consumptions doing much better.
Recovery of the economy can be slower than earlier anticipated especially in the emerging markets space except for China and the time frame where viruses hit any country is different.
Q) A mixed performance was seen from the Small & Midcap space in the week gone by. Small-cap stocks got some momentum going while midcaps recorded some profit-taking. What is your view on the broader markets?
A) With multi-cap allocation policy change for mutual funds, it's bound to cause some shift towards small-caps and a little bit towards midcaps.
Some of the multi-caps have mostly large-cap high allocation. Though there is time to make adjustments over the next 3-4 months. This will certainly help a broader market than just large-cap concentration.
As we said in our last discussion answers, small and midcap are preferable over large caps now. Small and midcap indices have outperformed the large caps by a very large extent in each come back of markets in that particular period.
So as to make a high conviction bet, the earnings growth of the company should continue for some quarters.This popularising of only big will become bigger happened only after small and midcap fall since 2018. It is not viable alone as 99% population is neither employed nor survives on the business of only the top 15 companies.
Rather these companies are definitely dependent on this population’s earnings and survival which indeed depends on other businesses and companies.
The total employed population is 500 plus million workers and the top 15 in India listed companies may employ only 25 lac, people, all together.
Other co-employees or small traders or vendors or businesses have income dependency outside Top15 and they are more important to survive to have sales of paints, sim cards, apps, or building materials or home loans.
Although an investor should focus more on the Size of opportunity, high growth earnings sustenance, management's execution capability. When your small or midcap stock becomes a large-cap then only substantial wealth is created. Forbes list changes many people every 5-7 years. Many companies grow.
Q) Sectorally, the action was seen in Energy, Oil as well as IT index while on the downside Telecom and Realty took a hit. What led to the price action in different sectors?
A) Markets also have been choosy in rally in some specific sectors much more than others. Opportunities in research, west partners JVs and anti-china sentiments are creating a plethora of chances for Indian entrepreneurs for next 5-7 years in chemicals, white goods, herbicides, injectable, CDMO and custom synthesis and new edge cloud, AI, IOT and ML.
There are sectors like Agrochemicals, Chemicals, vendor manufacturing, increased import duty segments, import substitution themes.
Also, the rise of online businesses with no disturbance in operations or sales of companies can be looked at. Technology companies that will help core companies to do business digitally and online will also do well.
Adversities will create new opportunities in Life, business, or markets. If we look at companies above Rs 1500 cr market cap which have risen a minimum 30% above Feb high which was sort of the highest pre-COVID levels there are about 110 such companies.
Not all of them would be great ideas but those which have some rational convincing reasons will do well.
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