Calendar year 2023 will give back to investors all the happiness that was sucked out by 2022, believes veteran fund manager Basant Maheshwari. “This joy will be on the back of better performance by small-caps,” he said in an interview with Moneycontrol.
Maheshwari admitted to having taken it on the chin this year with his small-cap investments. The benchmark index Nifty50 is up 6 percent while Nifty Smallcap 100 index is down 10 percent. But 2023, he believes, will be different.
“For any rally to be complete, the small-caps have to participate. That is the market segment where retail investors show most activity. Many small-caps are down 40-50 percent from all-time highs but have earnings visibility of four to five years,” he said, adding that retail investors are now bound to invest in the broader market.
Also Read: Nifty to hit 20,000 points in 2023, driven by FII flows, says BofA Securities
Pockets of opportunity in small-caps
With over 30 years of experience, Maheshwari has been credited with identifying several multibaggers. Among his prominent stock picks have been Hawkins Cookers, Repco Home Finance, Canfin Homes and Avenue Supermarts.
“If you find a B2C (business-to-consumer) company in the small-cap space, eight out of ten times you hit a home run,” he said.
Home finance companies are also B2C in a broad sense, he says. “A personal home loan is as important as buying a shampoo these days. In India, most loans are floating rates so interest rate hike cycle is not as much of a worry.”
However, Maheshwari does not hold Repco Home Finance and Canfin Homes at the moment.
Hinting at a stock in his BM Focused Smallcap Fund, the market veteran said that every rupee this media streaming company makes flows directly to the bottom line.
“It has a library of songs but unfortunately there’s no volume growth in this company. So I wouldn’t advise investors to put 20 percent of their portfolio in this one stock. But it certainly has a niche business with no incremental operating cost,” he said.
On PSU banks
Despite the change in narrative on state-owned banks, with Nifty PSU Bank index rallying 80 percent this year, Maheshwari still does not like the space.
“I believe it was just a one-time re-rating. Private sector banks with market cap of more than Rs 5 lakh crore were built with the idea of eating into PSU banks’ market share. So the question remains where the incremental lending growth for PSU banks will come from,” he said.
Another negative, according to him, is that each PSU bank tends to be focused in one particular geographical area which restricts growth. “Businesses shouldn’t be too comfortable. They should chase growth,” he believes.
Also Read: Why Saurabh Mukherjea is not a fan of PSU Banks
On railway stocks
These stocks are an ‘avoid’ for Maheshwari. “PSU railways stocks are run keeping in mind the general welfare of the nation and not the interest of shareholders,” he said.
The recent run-up is not unusual as these stocks always rally ahead of the budget and then fall, he added.
Stocks like IRFC, IRCON, Titagarh Wagons and RVNL have gained between 25 percent and 35 percent in the last month.
Also Read: Santa rally for Railway stocks | Tactical bets ahead of upcoming Union Budget spur buying
Three ideas for 2023
Without naming names, Maheshwari said he had three stocks he considered worthy of owning in 2023.
The first, he said, is a private equity firm-backed home finance company. “Investors might not know what’s on the company’s books but a PE guy would have done his due diligence before investing,” he said.
The second is the media streaming platform he spoke of. But there’s a caveat. “Don’t over allocate,” he said.
His third pick is a B2C firm with a market cap of Rs 20,000 crore.
Happy guessing!
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