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DAILY VOICE | Tech based IPOs which may look expensive today could turn out to be wealth creators in 5-10 years: Jyoti Roy of Angel Broking

The key philosophy behind investing is to always buy into good business with sound management at reasonable valuations and to avoid companies that have a balance sheet and corporate governance issues, says Roy

August 02, 2021 / 08:38 AM IST

Jyoti Roy, DVP Equity Strategist at Angel Broking, says that many new-age tech companies that are coming out with their initial public offerings (IPOs) look expensive today as most are incurring losses at the moment, but may offer huge upside to investors over the next decade.

Roy, who has over 10 years of experience, says the key philosophy behind investing is to always buy into good business with sound management at reasonable valuations and to avoid companies that have a balance sheet and corporate governance issues.

Here are the edited excerpts from his interview with Moneycontrol’s Kshitij Anand.

Q) What is your investment mantra for wealth creation? When did you start investing, and a little bit about yourself?

A) The key philosophy behind investing is to always buy into good business with sound management at reasonable valuations and to avoid companies that have a balance sheet and corporate governance issues.


One should not invest in a company just because it is cheap on a P/E basis as they are cheap for a reason and may very well turn out to be value traps.

It is better to pay a premium and buy into growth businesses with solid management as they will always deliver in the long term notwithstanding any short-term underperformance.

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) We believe that strong global liquidity flows, continued progress on the vaccination front, and swift rebound in economic activities from the trough in May are leading to a continued uptrend in markets.

Unprecedented monetary and fiscal stimulus by developed economies led by the US has led to a surge in global liquidity which is leading to record flows equities India leading to positive global sentiments.

From an Indian standpoint, the economic impact of the second wave has been significantly lower as compared to the first wave despite a much higher toll on human life.

While most parts of the country were in a lockdown during the peak of the second Covid in May, there has been a gradual withdrawal of restrictions through June as a result of which economic activities are expected to normalize in Q2FY22 which is positive for the markets.

Another key positive for the markets is that the pace of vaccination has improved from mid-June, is expected to accelerate further from August.

Q) Retail investors gulped down Zomato IPO in the first couple of hours of opening. It saw record subscription from anchor investors as well as MFs? Why was there so much interest in the IPO?

A) The Zomato IPO received a great response from investors and was subscribed 38 times. While the retail portion was subscribed 7.5 times the QIB and NII portion was subscribed by 51.8 times and 33 times respectively as investors queued in for a slice of the food delivery business in India.

In case of investors have not got allotment in the IPO they could look at adding it their portfolio post listing from a long-term perspective.

Given a strong delivery network, high barriers to entry, expected turnaround and significant growth opportunities in tier-II and tier-III cities we believe that Zomato could be a wealth creator in the long run.

Q) Apart from Zomato, there are many tech-based platforms that may come out with their IPOs in H2 including PayTM, Policy Bazaar. What is your view on them? Will they turn out to be the next wealth creators?

A) There are many tech-based IPOs lined up post the Zomato IPO including the Rs. 16,600 crore PayTM IPO. Most of the new-age tech companies are incurring losses at the moment and may seem expensive today.

However, over a longer-term horizon of 5-10 years, these companies have tremendous growth potential and quite of few of them will turn out to be wealth creators in the longer run.

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?

A) While it’s true that the 1991 budget speech by Dr. Manmohan Singh was the harbinger of economic reforms and kicked of the process of liberalization in India, there have been significant reforms carried out over the past few years.

GST, RERA, and IBC are some of the big-ticket reforms that have been carried out by the Government over the last five years.

While a lot of reforms have been carried out since liberalization in 1991, more needs to be done especially in the field of labor and power sector reforms.

Q) Small & midcaps are now trading at a slight premium to largecaps which was the case for long. Does that make you cautious on the space? What is your view and what should investors do?

A) Small & midcaps stocks have witnessed a tremendous rally since the pandemic lows in March of 2020 and are now trading at a premium to large caps.

As valuations in the midcap space has become expensive investors need to be more judicious in their stock selection and should only buy into companies with sound business models with strong growth potential and should avoid companies with balance sheet and corporate governance issues.


Q) Which sectors are likely to take lead in the second half of the year 2021? Where is the smart money moving?

A) With a major part of the economy being opened up we expect cyclical sectors like Auto, cement, infrastructure and consumer durables to do well going into the second half.

Banking and NBFC stocks may remain under pressure for some more time given asset quality stress due to the second Covid wave which will be reflected in the Q1FY21 results.

However, we expect the sector to bounce back strongly later during the year as the stress on asset quality subsides.

The key risk our call will be a sharp increase in Covid cases later during the year which may lead to state Governments imposing restrictions thus leading to a slowdown in economic activities.

While we believe that Industrial and cyclical will lead the next leg of the market uptrend we expect continued leadership from the IT sector given the structural increase in medium-term growth trajectory for the sector.

Q) Have you spotted any under-owned or unloved stocks that could probably make a comeback in the next few years?

A) We believe that some of the larger private sector banks like Axis Bank and ICICI bank will make a strong comeback over the next few years given that they have very strong liability franchises and will continue to gain market share.

While these banks used to be more corporate-focused in the past they have become more retail-focused now which makes their asset book more granular thus reducing risk on the balance sheet.

These banks have underperformed significantly in the second half of last decade due to asset quality issues on their corporate book. However, both the banks have made significant provisions against these bad assets and now hold provisions that are significantly above the regulatory requirements.

Moreover, Axis and ICICI are better positioned to withstand the shock from the second and possible third Covid wave as compared to the smaller banks which will provide cushion on the downside.

Q) What is your call on IT space – your preferred pecking order between Infosys, TCS, Wipro, and MindTree?

A) We continue to maintain a positive stance on the IT sector despite expensive valuations as we believe that the Covid-19 crisis has led to the accelerated adaption of digital technologies which has led to a structural up shift in the medium-term growth trajectory for the sector.

Post the sharp rerating for the sector we believe that investors will now have to be more selective in their stock selection given different growth trajectories for different companies.

Infosys is our top pick in the Tire I IT space followed by TCS and Wipro. MindTree is amongst our top pick in the Mid cap IT space given strong digital capabilities, revival in the retail travel & hospitality vertical and continued momentum in the hi-tech vertical.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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