Investors should adopt a bottom-up strategy and look to invest on every correction and not to be very short term in their approach, says, MD,There are high expectations vis-a-vis festivals rather than the earning season. Based on the high frequency data and some of the initial data which many of the companies have shared, I expect numbers would be good across sectors. Already IT major TCS’ results have come out and managed to beat expectations.It is all about the sales pick up as far as the domestic facing stocks are concerned and that would be what investors are keenly looking at. Whenever there are sharp dips or upticks in earnings, analysts are normally behind the curve. So despite the stock prices having run up across the board, I have a feeling that the earnings could surprise analysts on the positive side and there should be more upgrades than downgrades from a domestic perspective.As far as the US presidential elections are concerned, we do not have so much of a grip on what will happen and how it will impact but the only underlying theme that I understand is that with the kind of spat happening between the US and China, India has a very important place as far as the US and the Western world is concerned in terms of how to combat China. If we play that game properly, then we should be benefiting out of whoever comes in terms of the US Presidential elections. We should be able to attract more capital from the US.As investors, we are broadly dealing with the organised sector which are possibly the number one, number two, number three in whichever sectors they are performing and they are clearly seeing that the big is becoming bigger. The GDP growth numbers are bad but who is getting impacted? It is probably the smaller companies or the SMEs which are more impacted. The big companies are able to increase their market share even if the overall market is decreasing in their chosen segments. All of us have been trained to think that GDP and capital market should be correlated but the correlation is no longer valid.What we have seen in the last three-four months is not only a function of the increasing liquidity in the global and the local ecosystem but also the realisation that the listed corporates have the wherewithal to be able to survive these challenging times and also grow because of the capabilities that they have developed and that is reflecting in the stock prices.I do not agree with you on that. A very bottom-up investing needs to be attempted as far as the mid and small caps are concerned. Many of the mid and small cap companies are addressing very niche sectors and are the leaders in those sectors. If the sectors are doing well and the companies are in good shape in terms of their finances, then they could certainly create a lot of wealth. In fact, on a three-year basis, the overall mid and small cap indices are still struggling in terms of underperformance versus the large cap indices.There has been some amount of outperformance in this current calendar year and my take is that if the overall economy recovers, then possibly the wealth creation which could happen in the small and midcaps would be much bigger. As I said, we should be investing in the leaders that we believe can make it to the next level or can survive and that could be across market caps. Effectively what we are talking about is a very bottom-up kind of investing because in macros, it is very easy to say the glass half full or glass half empty depending on your basic nature.We have been very positive and enthused about this sector and the numbers disclosed by the IT majors last week only reiterates that. Plus the commentary coming from the management about the multiyear opportunity because of migration to cloud and then further because of whatever requirements are there for various companies. This is one segment which is more global facing than local with a huge amount of cash conversion in terms of profit in terms of the EBITDA etc.The IT sector which is aided by good tailwinds, should not be looked at from a very short term perspective. Yes, some of the stock prices have moved up but from a two-three year perspective, can we make 15-20% compounded returns? The odds are very much in your favour and please understand that with interest rates being what they are, the discounting that these companies can temporarily attract can be much more than what they historically attracted. We are very positive on the opportunities in this sector, not only amongst the IT biggies but even among the second tier companies which have their own niches.In pharma every company will have to be looked at from a bottom- up perspective. Many of these companies have a decent and a very strong domestic business. Some of them are very strong in the US generics, API, etc. My take is that the API manufacturers should be having further run in terms of their ability to deliver returns. They should do very well and apart from pharma, obviously healthcare and diagnostics are the other sectors which should be part of the healthcare pack that one should be looking to invest in. There has been a decent run up.There could be some pause but the sector is coming out of a lot of consolidation or correction. Last one year, things have turned better for the pharma companies and some of it is getting reflected in the stock prices. So there could be some consolidation post the quarterly results, but from a medium-term perspective, the opportunity for this sector continues to be robust. But one must do a lot of bottom-up analyses and then invest in this sector.In the last few months, we have been witnessing a very strong capital equity market. There will be a frenzy for investing into IPOs and they will have listing popup gains and whether it is sustainable or not will depend upon the fundamentals of the companies over a period of time. But this is again reflective of the sentiment which is very positive and maybe the merchant bankers have also been very kind with investors in putting some money on the table.A few of the issues have not done so well in the last two-three weeks. Sometimes it could be a question of how the pricing was arrived at. Typically, these kinds of frenzies are the nature of the game whenever the markets are doing well. As far as pulling away liquidity from the system is concerned, I do not think these are all leveraged applications, which are made by HNIs and then the money reverts back because the absolute size of the issues of most of the companies are not so big. Collectively they are not so big as to take away major liquidity from the system.Definitely. It is always good to be cautious at all points of time and the investors should never be overboard in terms of their investing beyond the limit that they can manage. But having said that, the performances of various segments of the market seems to be aided by a huge tailwind. You have mentioned IT and pharma. The auto sector is coming off cyclical lows. The agrochemicals and the BFSI space with the kind of monetary policy which was announced on Friday, will also have their own positive impact on many of the stock prices and they have probably bottomed out.When one tries to figure out which are the sectors to avoid, then the obvious names are hospitality or the entertainment sectors which are still impacted or the public sector where valuations are interesting but there are no stories to sell. There are very few sectors which seem to be having headwinds. In that kind of environment, it is best that investors stay invested and not look at the short-term movements.In fact, three weeks ago when the market was relatively weak at around 11,000-11,200, everybody was worried in terms of the flows and in terms of how markets will correct. After two weeks, we are at 12,000 levels. The investor should be looking to invest on every correction and not to be very short term in their approach. Read from source….
Go bottom-up & invest in market leaders irrespective of market cap
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