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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 positives.
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 trillion 3 (2020-2023).
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 the world any more.
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, microfinance companies.
Even the proxy affordable housing companies should do well
Vi) Food processing companies - Organic foods: Anything that act on value addition.
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.
