ETMarkets Fund Manager Talk: Atleast 500 consumer tech cos to get listed over the next decade: Amit Jeswani, Stallion Asset

Indian has been the best performing market in 2022. Do you see India repeating this show even in 2023 because some money managers think otherwise?
It’s tough to predict the markets, If someone in December 2021 indicated that there will be a war in 2022, crude oil will move to $110, The US 10-year bond yield will be 4%, US Fed will hike interest rates by 75 bps multiple times and the Nasdaq index will fall 30-40%.

I would have expected the Indian Markets to be down 20-30% atleast, however, we are ending 2022 on a positive note.

Even if I had all the information before it happened, I wouldn’t have been able to predict the markets.

In a nutshell, it’s tough to predict if India will outperform in 2023, but as long-term investors, the basic principle of making money is to “React and Not Predict.”

What were your major bets in 2022 and which ones you exited? Can you also briefly explain the rationale?
We have aggressively increased weights in consumer and financials this year, Whereas, we did reduce our technology exposure as these are more global linked. However, as we end the year, in the last 1 month, we have added some consumer technology to our portfolio.

We believe the global inflation has peaked both on energy prices as well as container prices. Throughout 2023, we will see inflation falling which is an exact opposite of 2022.

FIIs have sold Rs 4 lakh crore worth of Indian equities since April 2021, This trade will reverse as bond yields go lower.

Which are the areas you are looking at for an opportunity to deploy funds?
We are bottom-up investors and we are aggressively looking to deploy funds in companies who have the ability to grow at 20-30% for next 4-5-10 years and achieve market leadership.

We are very optimistic about the Indian macro, But you also need the right entrepreneur who can scale up.

The sectors we love are consumer, technology, financials and pharmaceuticals.

Manufacturing has become the talk of the town and money managers are betting their money there. Do you think India can really go neck-to-neck with China and attract big investments?

There is a reasonable probability that India will gain global market share in manufacturing especially after the PLI scheme which could be as big as the green revolution of India, if executed right.

Companies who are reinvesting large sums of operating cash flows is where the management is showing confidence and conviction.

For the short term, though, chemical prices are correcting aggressively and exports from textile to other sectors are very weak. So, our short-term view is different from the long-term view. We are on the cautious side for now

India has started seeing “dedicated” allocations from FIIs within the emerging market basket, rather than being just a part of their EM portfolio. What’s driving this bet and do you see scope for India to outpace China in the coming years?
The market capitalisation of India has crossed $3 trillion. I find no reason why there won’t be multiple India dedicated funds. The game of FII money is just getting started in India.

This year we saw largecap stocks doing better than the broader market which helped us scale record highs. Do you think midcap and smallcap stocks will get their mojo back and could also outperform in 2023?

The markets were narrow this year with value focussed stocks doing very well. Sectors in trend were railways, defense and PSU banks. Basically B2G.

The seeds of this rally were Air India Divestment and

IPO. Of course LIC has not made money for investors yet, but markets rewarded other PSUs as the market conviction of the government walking the talk increased.

Smallcaps in general only perform well once every 4 years. They did well in 2003, 2007, 2010, 2014, 2017 and 2021. I believe the next big smallcap rally will be in 2024-2025!

How comfortable are you with valuations currently? Do you think the premium that India commands will sustain given that earnings growth is also expected to be better in FY24?
Valuations are cheaper in companies where the last two quarters were bad. Valuations are expensive where the last two quarters were strong.

Markets are playing the
“quarter se quarter tak” game.

There are baskets like technology where valuations have gotten cheap but there is earnings risk, whereas PSU stocks’ valuations are not very cheap anymore.

Historically, the PSUs have always traded cheap because they are for the public good and typically not aligned for shareholders’ interest, but the question this time is different, which only time ahead will tell.

Which are the major sectors you would bet on in the near-to-medium term and why?
We believe financials, technology and consumer are the three sectors that will create the biggest wealth for the next 3-5-10 years in India. There is going to be consolidation of profit pools in India in every sector. We must bet on leaders who are gaining market share every year in every sector who reinvesting capital at 20-30-40% ROIC.

We just need 20-25 great companies and entrepreneurs.

Do you think the battered new-age technology sector could get some respite in 2023? Are you seeing any investment avenues in this pack?
Absolutely! The worst in valuations and earnings are behind. We need to focus on this pack, and in the next 10 years, at least 500 consumer technology companies will get listed.

We are in a marathon trend here and we have just finished 1 km out of the 42 km.

The customers are moving towards technology and the market cap moves wherever the customer moves.

This bear market is excellent for consumer technology companies as the competition intensity will reduce since there isn’t any free money. It is a winner take all game and I am confident of multiple big winners here in this decade.

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