Capex cycle is one of those things that one should only believe when one sees it happen. In the last 10 plus years, everyone, including us, have got it wrong, said Prashant Khemka, Founder, White Oak Capital Management.
The Sensex ended 569 points higher at 61,306 on October 14, rising 0.94 percent. The Nifty50 rose 177 points, or 0.97 percent, to settle at 18,338.5. Adani Ports, Wipro, Grasim, ITC and HDFC Bank were the top Nifty gainers, rising 2-7 percent. Coal India, Tata Motors, Eicher Motors, TCS and HCL Tech dipped 1-4 percent.
Nifty Bank rose more than 4 percent this week, registering its biggest weekly gain in five months. The Midcap Index was up for the eighth straight week, its longest weekly rise since 2010. Except IT, all frontline indices posted gains this week, auto being the top gaining index. To discuss the way forward for the market, CNBC-TV18 caught up with Prashant Khemka, Founder, White Oak Capital Management.
Asked if this is the right time to enter the market for newcomers with lump sum of money to invest, Khemka said, “My view is somewhat biased because I have always been fully invested in equity markets. That is the only way to create wealth is what I have learned.”
“My suggestion to any investor who asks this question is they must determine for themselves, in consultation with their financial advisors, what's the appropriate allocation for equities, factoring in risk appetite and personal situation -- and then sticking with it. If it needs to be changed, it should be changed in an evolutionary manner over many years … not from month to month, quarter to quarter or year to year based on what the market levels are,” he advised.
The right way to proceed would be to determine the allocation to equities according to one’s situation, and keep investing over time because time diversification, like other forms of diversification, is the only free lunch and the best way to mitigate risk while optimising the returns from the market, he added.
On the real estate space, he said the underlying strength in demand has been very strong and because of the consolidation in the industry, the stronger players have benefited to a much greater extent than during the past upcycles. “The nature of the real estate industry is fairly cyclical, the down cycles are very deep as are the upcycles. Keeping in mind some form of normalised demand environment, we are still struggling to find strong investment opportunities from a company-specific perspective, where we see a sizeable magnitude of upside. As a consequence, the allocation in the sector for the team continues to remain very low,” he said.
When asked whether the cycle would turn for the private sector financials, Khemka said this year they have not kept pace with several other cyclical segments of the market or the overall market, but over time -- that is over the last 10-20 years -- private sector financials, selectively, have delivered very outstanding returns.
He specified that it is very crucial to be selective about the sectors that we talk about. “When we talk about private sector financials, it includes not only banks and non-banking financial companies, but also insurance companies and various service providers that are broadly classified under financial services,” he said.
“Broadly speaking, the penetration of financial services is increasing, be it banking non-banking or insurance. So most of these companies are growing in the mid-teens to higher and they are often also gaining market share from public sector enterprises which used to have 100 percent market share in many of these segments. So, you have the potential for well-run private sector financials to grow profitably without taking undue risk in the over 20 percent range, or thereabouts, some growing a bit slower, others faster, for an extended period of time, like they have grown over the last 20-25 years," said Khemka.
"Over the last six to nine months, they might not have kept pace with some of the real estate and others industrials and sub-sectors but I would view that as more of an opportunity to bite into at this time,” he said.
On the capex cycle, he said it is one of those things that one should believe when one sees it happen. “In the last 10 plus years, everyone, including us, got it wrong. Like clockwork every year, there is more than enough reason to predict that corporate earnings growth is going to accelerate from a mid-single-digits to high-teens or so on, and like clockwork, it comes in at about mid-single digits,” he said.
“I feel confident that this time we are going to see robust earnings growth. We did see close to mid-teens earnings growth last year in the fiscal year ended March 21. There are several factors at play …consolidation is happening in favour of listed companies away from the mom and pop sector and this is finally materialising to stronger growth of both the topline and bottomline of companies, particularly the larger organised listed players. This can drive earnings growth even faster than mid-teens that we got last year and expectations right now are for this year to be 30 percent plus.”
Talking about consumer space, he said here we should consider both consumer staples and discretionary durables and non-durables.
The nature of the Indian market also makes it very exciting compared to markets globally. India is not skewed towards any one sector like some other emerging markets, which are heavily skewed towards commodity companies, be it energy or metals. “India has very rich, diverse, private entrepreneurially-driven businesses that are present in sectors like financials, IT, consumer, discretionary staples as well as healthcare, chemicals pharma," he said.
“We also own industrials. So that would benefit if there is any capex revival. We do have companies in the portfolio that would benefit from that. It is a smallish sector in the investible universe, and it's well represented to that extent in our portfolio, but we do not have a big macro call … hence we need to go the whole hog into that sector,” Khemka said.
For the full discussion, watch the video
(Edited by : Shoma Bhattacharjee)
First Published: IST