Anuj Jain, Co-founder and Senior research head at Green Portfolio said that companies in this PMS scheme are fundamentally strong that either has turnaround potential or high growth potential or are available at an attractive level of valuations.
Divam Sharma, Co-founder of Green Portfolio feels 2022 should be a better year than 2021 from IPO perspective as the water has been tested for start-ups with companies like Nykaa, Zomato and Paytm hitting the STreet. “There might be questions on valuations but the interest from investors towards this new-age companies is huge.”
Divam who has over 15 years of experience in wealth management.
When asked about his outlook for markets, he said: “If Omicron turns out to be as bad as the second wave, the market in India can see further correction.”
Edited excerpts:
Companies will start releasing their December quarter earnings soon. What are your expectations?
We had seen a good set of earning upgrades from companies over the last few quarters. However, a large part of that rise could be attributed to the pent up demand and on that high base being achieved, a further significant rise in topline seems unlikely. Also, not to forget, we have seen supply side disruptions in Q3 FY22. Further, we expect the pressure on margins to continue as we saw in Q2 FY22.
Which sectors are expected to report strong earnings growth for the quarter ended December 2021?
IT sector is expected to report a strong set of numbers with higher executions and order book growth. The sector would although continue to report high attrition rates.
Sectors like Pharma, Chemicals, the growth drivers for demand remained favourable, while challenges in high raw material prices, logistics bottlenecks, high energy cost will have an impact on the margins.
He co-founded Green Portfolio with his partner in 2018 and currently functions as the Head of Equity Research. Moreover, Anuj brings with him 14 years of experience with financial analysis and capital markets.
In an interview with Zeebiz’s Kshitij Anand, Jain said that the objective of this fund is to provide a high reward but with a higher than usual risk. The businesses chosen in this fund are turnarounds that lead to a spike in performance due to a special situation forming such as a change in key management, M&A, deleveraging, etc. Edited excerpts:
Automobile sector could show subdued numbers as the sector faced supply side shock in the quarter.
Analysts largely expect LIC IPO to take place in first quarter of CY22. Will the government focus more on monetisation in budget 2022? What could be the amount raising by the government via LIC IPO?
LIC IPO is expected to fetch approximately Rs 1 lakh crore to the Government. We expect a high interest in this IPO from institutional as well as retail investors. The decision to give allocation of IPO to policyholders can also contribute to the increase in retail participation in direct equity investments.
With Omicron and withdrawals from FPI that the developing economies have witnessed, we expect that the Government might fall short of their FY22 divestment target. The Government has, however, shown a clear intent with the progress in companies like Air India and should increase the monetization plans of PSUs in the upcoming budget.
Most of experts feel the year 2022 is expected to be much better than 2021 for the primary segment and the fund raising could be around Rs 2 lakh crore including LIC. Do you feel so, and what are the companies that are planning IPOs in the year 2022?
From IPO perspective, 2022 should be a better year than 2021 as the water has been tested for start-ups with companies like Nykaa, Zomato and Paytm. There might be questions on valuations but the interest from investors towards this new age companies is huge. Companies like Pharmeasy, Delhivery, Mobikwik, Ola, Oyo are all gearing up for listing on the bourses.
Q) Green Portfolio’s Super 30 scheme gave more than 100% return in 2021 outperforming other PMS schemes in the same period. What was your strategy?
A) The objective of this fund is to provide a high reward but with a higher than usual risk. The businesses chosen in this fund are turnarounds that lead to a spike in performance due to a special situation forming such as a change in key management, M&A, deleveraging, etc.
We aim to provide substantial gains in the medium to long term. We expect a minimum time horizon of three years. And throughout this investment period, we provide comprehensive research reports on a quarterly basis.
So, to put it differently, companies in this scheme are fundamentally strong and either have turnaround potential or high growth potential or are available at an attractive level of valuations.
This also provides us with a cushion on the downside and allows us to enjoy the upside potential.
Q) Small & midcap outperformed benchmark indices yet again in 2021 – will the outperformance continue in 2022?
A) It may not, it will be difficult to comment on it like this. However, select space/scripts are definitely overhyped.
But, so is the opposite. Hence, when we select stocks, we see that stock’s valuation and not the index. We tend to focus on the quality of stock and the upside potential that it offers.
The economy looks resilient from here, so we will suggest people stay invested in quality stocks. However, the biases/ sentiments, being created from the euphoria in select shares/ themes, should definitely be avoided.
Q) What is your trading style when it comes to picking winning stocks for the portfolio?
A) We try to keep it simple by focusing on good businesses with some kind of moat, good corporate governance, and an attractive level of valuation.
Lately, we have been quite optimistic on the Anti-China or China plus one strategy and Atamnirbhar Bharat themes doing rounds in the Indian Manufacturing Sector.
Talking specifically about the Super 30 scheme – it calls for deeper research as turnaround stories come with a package of associated risks.
In this euphoria market, it is easy to earn even from shares with ‘no fundamentals’, but when we are buying it, we are looking for convincing evidence of a turnaround in the performance.
Also, we try to gauge the impact of any economic downturn in performance. The share should be such that it will survive a bad economic phase.
To give an example, a company with a free cash flow of 100 will not be able to meet a debt obligation of 100 or more in a bad economic cycle.
This is a risk/red flag. There could be a mitigating factor also for example strong promoters with deep pocket and their intent to support this company. So, it is all about striking a delicate balance between risks and their mitigation.
Q) 2021 was a year when many small & midcap stocks gave multibagger returns. How can investors spot stocks trading at reasonable valuations?
A) Well, valuation per se, you can start with the industry valuation level. What are the average valuation levels in the industry?
Indicators like P/E, ROCE, Sales-to-Mcap, etc. could give some good ideas. However, don’t ignore the ‘collective wisdom’ of the market that has assigned a valuation to this share.
If something is really cheap, there could be a reason for the same too. This will call for a deeper study. Promoter’s background, company’s future plan, Balance Sheet quality, Industry tailwinds, Government policy, peer comparison, etc. are some of the factors to look for.
But, we are insistent on one part, number-crunching alone, that will not find you multibagger. There are so many subjective things to look for.
Q) Value or growth – who will win this time around in 2022. What are your views?
A) Themes like Atamnirbhar Bharat and Anti-China or China plus one has started a Capex wave around all the sectors in India.
Hence, we believe that in the next 2-3 years will be growth years. However, we will avoid abnormal levels of valuations around some spaces.
Q) Any rule book which you have while picking stocks for your Super 30?
A) We like to keep it simple, good stock at good valuation levels. The moment something meets these two criteria, we add it to our portfolio.
The age-old investment principles of legends like Warrant Buffet are our guiding force.
Q) Any advise you would want to give it to your readers for 2022?
A) The market is going through a bull run, we all should enjoy it but at the same time keep an eye on the valuation levels also (when picking stocks). This will help investors to generate good consistent and sustainable returns.
Don’t run behind the FOMO (fear of missing out) that you might have missed one particular rally of a stock. There are enough companies in the market. Invest in a disciplined way and markets will reward you handsomely.
Q) You have also started many small cases so that retail investors can also take the benefit of your knowledge and services. What is the kind of response you are getting from small cases portfolio?
A) Yes, indeed! The response has been good and currently, we are serving around 7000 + retail investors through small cases. We are one of the best small case on the platform – both in terms of performance and sales.
Q) Any industry expectations from the Finance Minister in Budget 2022?
A) Govt policies towards the economy have been good over the last couple of years like Make in India, Atamnirbhar Bharat and PLI.
We hope that Govt keeps the budget in that direction only. Even if they don’t do anything in this budget, it will still be a good budget. The ‘Indian Economic Growth Engine’ is already on a high-speed track, just don’t interfere with it.
(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)