Chemicals and pharma have been underperforming recently, however, with inflation slowing down, margins of players in both these sectors will see an improvement, says Divam Sharma, smallcase manager & Co founder, Green Portfolio in an interview with MintGenie. He also talked about the PLI scheme and FDI investments.
Edited excerpts:
When did you start investing or trading in the equity market? What inspired you to enter into equities?
I forayed into the equity markets when I was in my 10th standard. My commerce tutor had a knack for markets and he used to discuss specific stocks and the overall markets occasionally. Clueless as the person I was, I decided to explore what the ‘markets’ were and what the stock market really meant. Never looked back since.
Secondly, I was fortunate my family had been into investing since the 1980’s and this was a source of inspiration as well. As time progressed, I decided to pursue CA, and it was during my articleship that I and Anuj (co-founder of Green Portfolio) got acquainted. Anuj and I shared a similar passion which we decided to pursue 8 years ago. This is how we began our journey.
Despite the global equities not performing well, India has managed to outperform the other emerging markets. Your views on it?
India’s weight in MSCI EM index has doubled from 8% to 16% within the last 2 years. Given the growth prospect India is offering given its demographics, timely government policy and relative stability, FII and FPI are pouring into India and it’s becoming a formidable market in the region. The FTA’s and global approach towards India have been a testament of inherent strength as we have a very strong consumption market above all else.
When 3/5th of large economies are peering into the gloom facing a high probability of recession, India’s growth engine is in full swing. FII/FPI only view India as a desirable destination to invest as the USD and interest rates stabilise.
FDI has continued since 2020 and that’s thanks to stability in policy by the government, and initiatives to foster investments like the PLI scheme. The divergence from China is also supportive for FDI investment and this is being clearly visible now.
Despite heavy FII/FPI sell off during the last one year, the retail and DII investor group held up the equity markets well.
Your favourite sector of the year and what returns have this sector delivered in 2022?
Automobiles have shown a swift recovery and it has been a top performing sector in 2022. It has delivered 21.5% compared to the 7% NIFTY 50 has delivered. The easing of semiconductor shortages, cooling down of commodity prices and strong festive demand has been the pillars for this sector. We invested in this sector by picking specific automobile component manufacturers that were insulated from the threat of EV. We continue to hold some of these names to date.
What is the sectoral outlook for next year?
We remain bullish on Chemicals and Pharma in the small and mid-cap space. Chemicals and pharma have been underperforming recently, however, with inflation slowing down, margins of players in both these sectors will see an improvement. These sectors have been severely punished and now available at extremely comfortable valuations. Many players in the Industrials segment look attractive given their growth prospects too.
As for IT, it will be a wait and watch for H1CY23. In the textile segment, the sector has been recovering as yarn and cotton prices settle. We remain bullish on a few names in this sector.
Consumer durables are prone to sentiments and slow-down in demand for these products. We are not bullish on consumer durables nor are we exposed to this sector at the moment.
Which stock has outperformed/underperformed in this sector?
We are yet to see outperformance in these sectors we are now investing in. In the automobile space, players like Force Motors and Mahindra CIE have outperformed thoroughly during 2022 and we remain invested in these names. When it comes to today, Valiant Organics and Dalmia Bharat Sugar are the companies that have underperformed for us, but which we are confident will perform well over our investing time horizon.
Which stock would you recommend/ do you expect will perform well?
We expect the following stocks to perform well over the next three years: Piramal Pharma, Valiant Organics, Finolex Cables, Bharat Forge and Hindware Home. Capex of some of these companies are now coming online and the guidance given by the management continues to be robust. The above names are small and mid-cap names wherein we see them benefitting as inflation slows on the cost side and demand ramps up on the revenue side.
We foresee severe margin and revenue expansion over our investment horizon in most of the companies. Stock prices are available at comfortable valuation for these names. All in all, we are foreseeing an early double-digit growth in the performance of these companies.
What new year resolution should new and young investors adopt to bring investing discipline in themselves?
The youth try to time the market which we have seen time and again. This biasness must be avoided as markets cannot be precisely timed. As the markets were falling during the first half of 2022, many investors sold off, shadowed by panic and some portion of the crowd kept waiting for deeper falls which actually never materialised, and they eventually missed out on the rally.
Some retail investors, despite being aligned to the investment thesis, sell in the short run to re-enter when the market sentiments improve. Apparently, they never achieve a high rate of compounding as it's very difficult to time the markets. Also, sometimes the correlation of markets and economy might be absent as markets move ahead of economic indicators on ground and also many times markets remain irrational for long.
Patience is pivotal to achieve success in this market. We have seen several banks, PSU’s and ITC in specific raging from the dead and rewarding the patient investor.
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
