Vinit Bolinjkar, Head of Research, Ventura Securities, in an interview with MintGenie advised investors to pay key attention to the operating cash flow of the company. He advocates a bottom’s up approach as he strongly believes that good companies will be able to do well even in a rising interest rate cycle. Edited Excerpts:
Do you think the second half of 2022 be different from the first half for the Indian markets?
We believe that most of the negatives are now known and factored in the prices. Also, crude has slowly started its downward trajectory and hence the 2nd half can be positive for investors. However, for the 2nd half, we are sitting on a high base and YoY growth in earnings will not be easy for the companies given high-interest rates.
What trends will impact the second half of 2022 the most?
Crude price and FED hike will be key monitorables for 2nd half of 2022.
What is your approach for markets at this time? Which strategies one should follow to protect the portfolio amid volatile markets?
We have always advocated bottom’s up approach as we strongly believe that good companies will be able to do well even in a rising interest rate cycle. In terms of strategy, we believe that one should keep buying good companies at these prices but in a staggered manner.
How should one pick investment ideas for the remainder of the year?
One should pay key attention to the operating cash flow of the company. Strong cash flow generation has always been underrated during the period of easy liquidity where valuations go haywire. But in testing times as we have currently, companies which have strong cash flow generation history will definitely be able to withstand high-interest rates.
IT which was the best outperforming sector for 2021 and has now become a laggard. Is it because of business concerns or just a profit booking?
Well, it’s a mix of both. In the current earnings cycle, we have seen that deal wins still remain strong but employee attrition rates and wage inflation concerns still persist. Also, big companies have not completely ruled out the possibility of a cut in IT spending by their clients.
What are your views on the telecom space with Adani entering the 5G spectrum auction now?
While we have not actively looked at the sector, we believe that with big players like Adani entering the space, competition will only become more intensive. However, we believe that Adani will not foray more into the consumer side but will look into large enterprise deployment.
The banks seem to be recovering now. Do you think it is finally the time for banks? Which are your top picks?
We prefer the big 4 in the order of ICICI Bank followed by HDFC Bank, Kotak, and then Axis. We do believe that these 4 banks have scope to improve their NIMs given the rising interest rate cycle. We do believe that the digital capabilities of these 4 banks are highly underrated. If we watch the results closely, one would notice that the digital piece of operations of these banks has been picking up at a much faster pace which will result in a fall in the cost-to-income ratio of all these 4 banks.
What are the chances of a recession in the US?
The chances are high as per media articles. Also, recent inflation data from the US will definitely make the FED think about more aggressive hikes in the future. The market has not factored in more than a 75bps hike in July.
When do you think the foreign investor's outflows will turn into inflows again?
It all depends on how crude prices and FED react in the second half. However, we do believe that with valuations now at fair levels, it's only a matter of time before FIIs would start reconsidering buying again.
What will let them invest in India?
Ultimately the market movement has to be in tandem with earnings growth. If companies are able to showcase good results even in a rising interest rate scenario, FIIs will surely look to invest again in India.
2 stocks that you think can turn multi-baggers in the next 5 years.
We believe that Deepak Fertilizers can be a good multi-bagger stock for the next 5 years. The company is embarking on a big CAPEX for its various products and unlike previously indicated, it is now funding the CAPEX more from internal accruals than through debt which shows that the company has been able to generate a good amount of cash flow from operations.
We also like Adani Enterprises and although it may not be a multi-bagger given its already high market cap we still believe that the company’s entry into new age businesses along with its history of good capital management will help to churn many new big businesses within the company.
