INSUBCONTINENT EXCLUSIVE:
By Arun Mukherjee Soumya Malani(Kolkata’s Arun Mukherjee, who dropped out of college to turn a full-time investor at an early age, and
Soumya Malani, a London School of Economics passout, have come to be known as smallcap aficionados within India’s investor community
They would show up at most AGMs, visit the remotest factories of a company and go chasing end-users to understand their experience with a
product in their passionate hunt for good smallcaps
Arun and Soumya would be sharing their experiences with such companies from the ground in this space every now and then
Keep watching)The last five years was a great period for the stock market, with investors making money with both hands on several stocks
Worries over the recent bumps and near-term headwinds would go away if you look at the long-term growth story of the economy
If you can develop conviction on that theme, the current downturn would leave you with plenty of opportunities for stock picking.
Look at
the big changes in the economy
In GST, India’s biggest tax reform since the economic liberalisation of 1991, we have definitely seen a lot of intent
Then from Jan Dhan to the passage of the Aadhaar bill to LPG subsidy transfer through DBT to RERA, all these reforms can be long-term
FDI flows to India have jumped to $62 billion in 2017-18 from $36 billion in 2013-14
Now all eyes are on the revival of the private capex cycle, which has seen a sustained downturn since 2007
Massively-leveraged balance sheets have been a major pain for many companies
Till the time the capex cycle resumes meaningfully after capacity utilisation reaches a respectable level, there would be more NPAs and
minimal job creations in the country
There are already talks about creation of a bad bank, which can make lives easier for corporates in the long run
More reforms are likely to follow and deliver the numbers
After the demonetisation shock, a lot of money got migrated to equities from physical assets
With time, as financial literacy increases, more Indians are likely to be inclined to bet on equities
We recently read a wealth creation report by a top brokerage house, which it took India 60 years (1948-2008) to hit the first trillion mark
in GDP, but the second trillion took just seven years (2008-2015) and the third trillion will possibly take 5 (2015-2020), and fourth
The Sensex has grown 100 times in 32 years, at 15 per cent CAGR
India remains the favourite investment destination and nobody thus can ignore the fastest growing economy in the world
Over the next 10 years, equities will beat other assets hands down provided one gets bit meticulous on their stock picking
A lot of great companies backed by superb pedigrees are on the cusp of inflection point
They will certainly ensure one becomes liberated early in life.
We have heard of global MNC giants and their growth stories
Now, desi entrepreneurs are gearing up to play the global theme with the vision of creating Indian MNCs
These easily show that India has reached global scale and size
The economy is on its way to becoming an economic superpower
The Made in India theme is running wild
India as on date ranks among the top 10 nations of the world to attract highest foreign direct investments
The Indian economy has witnessed a paradigm shift in last one decade and is on a strong growth trajectory
India's GDP growth rate is expected to be the fastest globally
The country's per capita income has risen steadily over the last few decades
Since 2003, India's total market capitalisation has grown over 600 per cent, which is just second to China’s
With China sneezing big time these days, the next decade can very well belong to India
Thus, it’s the best time to embrace equities to tap this growth opportunity.
We have reached a certain stage where we cannot be ignored by
Our consumption is expected to rise at over 7 per cent annually over next 25 years
By 2032, eight out of 10 Indians will belong to coveted league of the global middle class
There will be some speed bumps along the way (you guessed it right, demonetisation was a great speed breaker), but there won't be any
U-turn.
From a macro perspective, our stock valuation may look a bit expensive, but considering the growth profile and possibility of value
unlocking from balance sheets, it is bound to remain expensive
Corporate earnings are expected to grow at a healthy pace of 16-18 per cent CAGR over the next 3-5 years
The idea is to take exposure to right sectors and stocks
Sectors to the play Indian growth story
Indian equity investment opportunities can be classified into eight macro themes:
(i) Migration
from unorganised to organised sector: - Plywood, adhesives, pipes, paints, footwear
(ii) Domestic consumption/lifestyle-based opportunities:
FMCG, retail, entertainment, multiplexes
(iii) Infrastructure spending-based opportunities: Power, ports, roads, airports, mining,
construction
(iv) Agriculture-based opportunities - Irrigation, agri-processing, fertilisers
(v) Banking and financial services - NBFC,
Even the proxy affordable housing companies should do well
Vi) Food processing companies - Organic foods: Anything that act on value
Organic tea, readymade processed foods, value addition in dairy
Vii) Outsourcing-based opportunities - Auto ancillaries and pharma which are
into the contract manufacturing area
viii) Distressed companies with great assets: Where there's a forced change or a debt settlement or
with an ARC taking control and making it turnaround.
