ETMarkets Smart Talk: If you have $100 then invest in India; Mohit Ralhan explains his long-term view

By December 2, 2022DeFi
Click here to view original web page at economictimes.indiatimes.com

"Indian market will continue to stand out when we compare it to EMs. But, it is very difficult to say whether it will stand out in every week, every month, and every quarter. But, predominantly yes, it will continue to stand out in most of the time frames. India is also likely to continue demanding relatively higher valuations compared to global peers."

“The market view is always associated with a timeframe. The other factor is relativity. If you have US$100 to invest, then in which country you will invest today and for what time frame?,” says Mohit Ralhan, CEO, TIW Capital Group.

In an interview with ETMarkets, Ralhan with over 2 decades of experience, said: “If we look at a decadal or a higher time frame, investing in Indian equity is extremely attractive” Edited excerpts:

Indian market touched fresh record highs in November and the journey continued in December. What is your outlook on markets?
The market view is always associated with a timeframe. The other factor is relativity. If you have US$100 to invest, then in which country you will invest today and for what time frame?

If we look at a decadal or a higher time frame, investing in Indian equity is extremely attractive. As far as the next 10-15 years are concerned, the Indian economy is likely to relatively do much better, which also means that capital allocation to India in the context of global portfolio allocation will go up.

India’s share of the world GDP is about 3% but the capital allocation of global wealth to India is roughly 0.25%.

As the Indian economy becomes stronger, it is likely to at least achieve a capital allocation level which at least reflects its GDP share.

So, now if we are looking at the year 2035, what do we see? A relatively faster-growing economy with a relatively higher inflow of capital.

The highs and lows of 2022 are irrelevant in this context. But, of course, if the endeavor is to generate that extra percentage point returns, we need to look at the correct entry timings.

Purely from this perspective, one may wait for a few months, since the market is highly likely to be given an opportunity to enter at a lower level. I think, for the next 10-15 years, India is going to be a classic buy-at-dips market.

The recent rally seen in the Indian market stands out when we compare it to EMs. The rally also makes Indian markets slightly expensive compared to global peers. Will India be able to hold on to the outperformance?
Indian market will continue to stand out when we compare it to EMs. But, it is very difficult to say whether it will stand out in every week, every month, and every quarter.

But, predominantly yes, it will continue to stand out in most of the time frames. India is also likely to continue demanding relatively higher valuations compared to global peers.

On an average, it shows typical characteristics of a growth stock. It is among very few economies that can potentially give an annualized double-digit return over next the 10 years since the average nominal GDP growth rate is expected to be more than 10% per year.

It will go through its peaks and troughs and cycles but directionally, I am quite bullish on India.

Where do you see the next set of leaders emerging from?
Rather than taking individual names, let me talk about a suitable framework. Names can change since the stock market is quite fluid in nature and one needs to continue checking and rechecking investment hypotheses.

The current set of leaders are also quite good investments but if the objective is to look for the next set of leaders, and therefore a higher potential of outperformance, the constituents of Nifty Next 50 is a good place to start looking.

We can go down the chain to the top 200 or top 250 stocks and constituents of mid-cap and small-cap indices as well but we must understand that risk as defined by volatility continues to go up and every investor needs to really think hard about striking the balance.

We like companies that have zero debt or very low levels of debt, a strong offering that already has got a good market share in India, but the product quality is such that it can be exported as well.

Already having an export income is positive but a study of export potential and management’s actions or inclination can also give good insights.

The export potential is critical because there are market leaders in India, but they may be operating in small categories and therefore growth opportunities are limited by sector growth in India. One example is

La Opala

NSE 1.80 %.

Vinati Organics

NSE -0.51 % is another such example. Several auto ancillary companies will fall into this category. Most of the companies in India’s chemical sector are also quite interesting.

As far as sectors are concerned, banks should also continue to do well as they largely reflect broader economic growth, and a significant amount of clean-up has already happened.

In terms of emerging sectors, the electrical vehicle’s (EV) ecosystem is most likely to take shape. Another extremely rewarding area will be the maturing of the start-up ecosystem in India when venture capital-funded companies that have actually developed technologies, and especially B2B products, will start tapping domestic IPO markets.

Recently, PSU as well as Rail stocks have picked up momentum. What is driving rally in these 2 sectors?
The National Infrastructure Pipeline program has created extremely robust order books for most of the railway-related stocks.

Although the program was announced in 2019 with an expenditure of 102 lakh crores between 2020 and 2025, the market has now got a sense that it is for real.

The order book of most of the PSU Infrastructure related companies including railways are more than 3 times their revenues.

Also, there is a definite push by the government to increase domestic manufacturing of defense-related products to whatever extent possible.

The other factor is the central government has given a clear indication of continued divestments which propels PSU stocks in the short term. The rally looks in its late stage and the change in sentiment looks priced in for now.

Any sector(s) which you think investors can pare their holding as well move towards record highs because it might have already run up?
Capital Goods and Auto have been amongst the best-performing sectors and a little rebalancing may be done.

These sectors in absolute terms are not likely to perform negatively but purely from a risk-reward perspective, there may be more opportunities as of currently in real estate and IT.

Should one consider rejig their portfolio as markets create history?
Rejigging is a continuous activity for a professional investor and that’s how one tries to beat the market. What I look at is the margin of safety which is the gap between the current market value of a stock from its fair value, as per my own analysis and followed by a capital rotation from the low margin of safety to the high margin of safety stocks.

This should be further modified by a diversification principle so that the portfolio doesn’t get concentrated in a few sectors. One should consider rejigging which should be consistent with his or her portfolio-building framework or philosophy.

If I am not comfortable buying a stock at the current price level, then it should not be in my portfolio, even if I have bought that at a lower price level.

Now that bulls have again taken control of D-St do you see more IPOs making their comeback to D-St? We have already seen a few in Oct-Nov. Any particular IPO(s) which you are looking forward to?
The IPO market has a direct correlation with the rise in entrepreneurship. The last decade in India has witnessed an unprecedented rise in entrepreneurship and the availability of venture capital.

India has now 3rd largest start-up ecosystem and it counts more than 100 companies as unicorns. I have no doubt that it will give a big fillip to the IPO market, non-withstanding short-term volatility issues in stock markets.

There are more than 75 companies that have announced their intent to go for IPOs and even if some of them have delayed the process, eventually the direction is quite clear.

As far as IPOs in 2023 is concerned, several companies including the likes of Fab India, Capillary Technologies, and Tracxn Technologies look interesting.

How do you see export-linked sectors faring in the near future?
Given the INR depreciation recently, the quarterly results should show better growth and margins for export-oriented sectors, so it should do well in near future. It can be a good bet as far as the near future is concerned.

Your biggest upgrades or downgrades post Q2 results?
The September quarter earnings were typical of the earnings expected during an early and mid-stage of an inflationary environment.

The companies report revenue growth, as demand remains strong and they are able to pass on the increase in input prices to a certain extent but the increase in costs is disproportionate, resulting in a larger decline in profit margins.

An analysis of about 2500 top-listed companies indicates that aggregate net profit declined by over 6% YoY. The December quarter is also likely to be subdued in terms of profit growth.

The global economy is at a delicate stage where the central banks are making their best efforts to control inflation without any significant decline in aggregate demand.

It’s easier said than done and therefore I think that stock price levels are likely to rationalize a bit, giving a good opportunity to enter.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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