Alpha Creation | Investment Ideas: ETMarkets Smart Talk: Many opportunities of alpha creation in India in next 10 years: Kunal Bhakta
In an interview with ETMarkets, Bhakta who is a seasoned investment professional with 15 years of experience in capital markets, said: “Over the next decade or so, India is likely to gain in dominance relative to China, when it comes to a number of sectors such as chemicals, pharmaceuticals, steel and so on.” Edited excerpts:
India has turned out to be the bright spot in the global arena despite some selloff. Where do you see markets headed?
There is no other market across the globe that offers a domestic consumption-driven story as robust as India and therefore, it is not surprising to see the Indian stock markets outperforming its peers which are a lot more dependent on the global economy.
India Inc. has always remained relatively decoupled from global factors, with a limited impact on its earnings. This, along with an ever-increasing base of domestic investor money, will continue to drive resilient markets in the medium term.
How to spot potential wealth creators of the future? What filters do you use?
We at First Water are strong proponents of the traditional margin of safety approach to investing. While there is no single path to wealth creation in the stock markets, we stick to businesses and sectors which we believe we understand, which typically are manufacturing-oriented businesses, rather than esoteric new-age stuff.
Within this overriding theme, we believe companies that have a dominant market presence and reasonable growth prospects but are available at a meaningful discount to intrinsic value due to perception issues, could create a lot of wealth going forward.
We do not believe in buying into growth plays at any valuation. The price has to be right, given the value that the business offers.
There is plenty of action in the consumer discretionary space. What is driving the rally in this sector and are there any stocks which are looking attractive?
As I already espoused at the onset, consumer discretionary has been and will continue to be a key theme for Indian equities going forward.
While rising interest rates may act as a dampener to some extent, the overarching theme in terms of rising disposable incomes as India continues to reap its huge demographic dividend, will far outweigh any near-term slowdowns from rising interest rates.
Having said that, a number of stocks in the space will continue to do well over the medium-to-longer-term. We do not believe anything is overly attractive at this juncture and most stocks are priced to perfection.
Do you think the next decade belongs to India?
I would tend to agree with Moody’s assessment; India was never a leverage-driven economy and most of the growth it has witnessed over the years has been structural.
Over the next decade or so, India is likely to gain in dominance relative to China, when it comes to a number of sectors such as chemicals, pharmaceuticals, steel, and so on.
It is going to be an exciting place for global investors and there will be many alpha creation opportunities here!
What is your take on the small & midcap space?
Small and midcaps have always been our areas of focus. While we follow a multi-cap strategy, we have a predominant share of small and midcap names in our portfolio.
What happens in the short term is anybody’s guess, but we believe that over a period of time, small and midcaps will continue to outperform their large-cap peers even on a risk-adjusted basis.
If one can pick the right kind of businesses to back, a lot of these are likely to become large caps over the next 3-5-7 years.
Number of demat accounts cross 11 cr mark – a milestone moment. What would you advise to someone who is less than 25 years of age and wants to invest in stock markets? Can he dream of becoming a crorepati and what would be required?
My advice to first-time investors, especially those below 25 years of age would be simple, depending on your circle of competence, invest in businesses that have dominant market positions and those that are easy to understand.
There is so much noise out there and one can easily get carried away in the flavor of the seasonal bets; I would strongly advise investors to stick to tried and tested tenets of long-term value investing and avoid the temptation of becoming overly adventurous.
Becoming a crorepati is quite cliche as it is all contextual to the day and age in which one achieves that number as an investor.
That said, I have no doubt that purely by sticking to the basics, a large number of first-time investors are going to amass lots of wealth over time.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
