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China-plus-one theory working well for India; betting big on manufacturing: Vivek Bajaj

"If India has to become a $5-trillion economy, then the banking and financial services space needs to grow. That apart, India is emerging as the second manufacturing hub, thanks to the problems in China. Hence, I would bet on manufacturing companies that are doing unique work," says the co-founder of Elearnmarkets and StockEdge.

August 31, 2022 / 08:48 PM IST
Vivek Bajaj, co-founder of Elearnmarkets and StockEdge

Vivek Bajaj, co-founder of Elearnmarkets and StockEdge

Inflation and rate hikes will continue to impact markets in the short term. However, a 25 bps, 50 bps, or 100 bps rate hike is not a worry, especially, if there is growth, says Vivek Bajaj, co-founder of Elearnmarkets and StockEdge, in an exclusive interaction with Moneycontrol's Swati Verma.

Bajaj adds growth will re-emerge this year. Hence, even if interest rates stay at elevated levels, that should not be a concern.

Vivek Bajaj has over 15 years of experience in equity trading and investing and is currently full-time involved  in and, which aim to revolutionise the way the financial market is approached in India. Edited excerpts:

I want to start with the cliche - Kya lagta hai? What's your short- and long-term view on markets amid concerns over the Russia-Ukraine war, aggressive rate hikes by major central banks, the China crisis, and growth worries? Do you see the Sensex breaching the record high of 62,245.43 touched in October last year anytime soon?

I think so. The Nifty50 index is trading above the 200-day moving average, which is around 16,550 levels. Historically, whenever the market has traded above these levels and stayed there for some time, generally, it has given a good rally.

That apart, negatives such as inflation, are getting topped up. As regards the Ukraine-Russia conflict, the situation everywhere is so bad economically that going into a full-fledged war is a remote possibility.

So, from the market point of view, India is the most preferred destination currently, as a lot of money is flowing out of China and going to countries like Taiwan and India, which are becoming hubs for their respective core competencies.

Hence, I feel India should do good, especially small-caps, which will eventually become mid-caps; these should do far better than the large caps.

Do you think inflation and rate hikes will continue to impact the markets? 

In the short term, yes. For the coming one to two quarters, it’s possible. But from 2023 onwards, I see a very good market as due to the base effect, inflation will start getting flattened. The interest rate is a function of inflation as well as growth. So, last year's GDP growth was phenomenal; again this year, growth is getting flattened. So, next year, because of the base effect, growth will also be better.

Moreover, I don’t think inflation will be a major concern and current interest rates will probably stay here for some time. A 25 bps, 50 bps, or 100 bps rate hike is not a worry, especially, if there is growth. So, growth will re-emerge this year. Hence, even if interest rates are slightly going up and staying at elevated levels, that should not be a concern.

Ashima Goyal, one of the MPC's members, recently said that the Indian financial market is too focussed on the US Fed actions. What's your view? Do you feel we emphasise the actions and statements of central banks of big economies?

I would deny that. In fact, we do give cognisance to the actions of these big economies because ultimately, money flows are coming from all these big economies. So, one cannot deny their dominance. But, is our policy-making influenced by their policy making? By how much percentage? The question is: are we 100 percent dependent on them? The answer is no.

But will our policy framework keep 20-30 percent of that in mind? Yes, because it's a globalised world. All the central governments have to take cognisance of the big economies from where money is coming. So, we will not copy-paste what they are doing but we will definitely get influenced.

Tell us your investment strategy.

I carry two portfolios. One is a Core portfolio and the other is a Satellite portfolio. My core portfolio reflects my age. So, if I am 40-year old, my core portfolio will be 40 percent. The moment I become 60-year-old, my core portfolio will become 60 percent.

My core portfolio will have my best 10-15 stocks which I am doing constant SIPs in because I believe in them. I feel that if India has to become a $5 trillion economy, these 10-15 stocks will lead that growth.

For instance, ICICI Bank — it is one of the most important banks in our country... I mean you have to take a bearish call on India if you do not buy ICICI Bank. Most sophisticated, highly tech-enabled, doing phenomenally well in the last three to four years... so, ICICI Bank is a part of my core portfolio. Hence, I keep doing SIPs in these stocks and my return expectation is approx. 15-18 percent CAGR.

Second, is the satellite portfolio. So, if 40 percent goes to my core portfolio, 60 percent goes to my momentum portfolio, which is my satellite portfolio.

Momentum is basically when a stock is showing strength. So, in a falling market, there are stocks that would show strength, and in a rising market, too, there will be stocks that would show strength. Hence, my core agenda is to find stocks where there is strength.

Hence, in a falling market, I do SIPs constantly in my core portfolio, and at the same time, I find stocks that are showing strength. For this, I have a Relative Strength Model that I use which is very clearly communicated on my YouTube channel.

So, I keep buying the stocks that show strength and I also exit the stocks that show weakness. So, my momentum is a more active investment and my core is more passive.

What is a good portfolio allocation for someone who has just started their equity investment?

One should start with Nifty SIP. This is important because by doing that, one is involved in the market in some way and it can be done with as low as Rs 500 per month.

Secondly, it depends on how much time one has. If someone has 10 hours a week, then, direct equity should be considered. But, if someone does not have more than two hours a week, then, it is better to take a mutual fund route.

Now, suppose one has time and they want to invest in equities, then one should have the model that I communicated — Core portfolio and Satellite portfolio.

What are your overweight and underweight sectors currently and why?

If India has to become a $5-trillion economy, then the banking and financial services space needs to grow. Although the banking sector has faced a lot of troubles in the last two years and has been an underperformer, I think NPA clarity is very much there; the banking system is quite clean.

That apart, India is emerging as the second manufacturing hub, thanks to the problems in China. So, the China-plus-one theory is working well in India. Hence, I would bet on a few manufacturing companies that are doing unique work, it could be chemicals, textiles, or any company where the manufacturing leverage of India can be capitalised, I would bank on it.

Third, select IT companies and, definitely, not the ones that are heavily dependent on the US markets... it's not a good idea to invest in them as they are already expensive companies.

However, midcap IT companies such as KPIT, and Tata Elxsi, are good bets as these are specialised companies.

Hence, it’s better to focus on those that are doing futuristic things, than on large IT firms that are just doing service-oriented tasks for US companies.

What are the key financial metrics that an investor must study before investing hard-earned money in any stock?

There are six parameters — growth, profitability, efficiency, solvency, valuation, and quality.

Growth can be measured in terms of profitability growth, sales, and revenue growth. While profitability can be measured in terms of gross margin/net margin.

Efficiency can be measured in terms of debtor ratio, creditors ratio, and current ratio, while solvency can be measured in terms of debt-equity ratio, and interest coverage ratio.

Valuation can be measured in terms of P/E and peer group valuation and quality is management quality and future expectation/sector quality.

How critical is technical analysis while choosing stocks?

Technical analysis is the only science that gives you entry and exit. The biggest lacuna of fundamental analysis is that it does not give you entry and exit points. Seldom you will see any fundamental analyst telling you to sell, but technical analysts will tell you to sell.

So, I would say that in today's new world of so much dynamism and disruption around us, it's equally important to sell. When I hear people on TV saying, profit booking is happening, I wonder why we don't say, loss booking is happening.

This is because loss is equally important as profit. Loss is the biggest feature. Profit gives you confidence but loss gives you knowledge and learnings.

Hence, for proper entry, and exit, and for active financial management, tech analysis is a must. For passive investment, fundamental analysis is good enough.

Swati Verma
first published: Aug 31, 2022 08:41 pm