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    This is a fantastic stock pickers market: Dipan Mehta

    Synopsis

    ​We have the economy picking up pretty well, they are increasing the forecast for FY2023 and FY2024 and beyond. Oil prices, one of the biggest problem with India, have now corrected significantly. The war in Europe is no longer such a major issue. As far as inflation globally and in India is concerned we are beyond the curb and India have gone through the toughest part of inflation, interest rate increases.

    Dipan MehtaETMarkets.com
    Valuations of all these companies is on the higher side but their growth rates also will surprise you going ahead. So I would go for high performers within the IT space.
    "We are looking forward to better times in 2023 and hoping that investments which we make today and the next few weeks or so should deliver exceptional returns going ahead," says Dipan Mehta, Director, Elixir Equities.

    We have been confined to a tight range for the last five days on the trot. What is the sense that you are getting given the direction that we are seeing for the global markets? Do you believe that we are likely to come out of this range sometime soon?
    I think this is a typical phase in the market. Generally in a bull market we witness consolidation from time to time and the market moves very-very selectively. Although new stocks are reaching new highs and there is a good amount of rotation sector wise, stock wise one does not feel that across the board that there is a rally and that is perfectly fine.

    This is a fantastic stock pickers market and if investors do their hard work and invest in good quality businesses at reasonable valuations then in the next three-four years you should see them deliver fantastic returns going ahead.

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    So as such I do not have any complaints the way the market is moving at this point of time and we are just focussing on specific businesses post this earning season and post all the kind of negative news flow which have now been priced in.

    We are looking forward to better times in 2023 and hoping that investments which we make today and the next few weeks or so should deliver exceptional returns going ahead.

    We can feel happy and excited that okay the world fell and we were standing tall but on an absolute basis if I invested into equities I got 6% that's it?
    That is right but you have to temper your expectations as well. Although 2023 may be better than 2022 there will be only few days where you should expect low double digit returns and if your expectation is on those levels for the index as a whole then obviously you will feel that you have generated a decent return on your portfolio.

    Generally the way I look at the market for the next few months and quarters it seems that we will have high degree of stock outperformance. Right now the small midcap stocks where lot of investors money has been invested have been underperforming but it is only a matter of time and with every passing quarter we are seeing gradual compression of the price to earnings multiple and at some point of time that process will come to an end.

    Then stock prices will start to move in line with the improvement or the increase in the earnings and most importantly I think almost all the parameters are turning positive, FII flows have become positive.

    We have the economy picking up pretty well, they are increasing the forecast for FY2023 and FY2024 and beyond. Oil prices, one of the biggest problem with India, have now corrected significantly. The war in Europe is no longer such a major issue. As far as inflation globally and in India is concerned we are beyond the curb and India have gone through the toughest part of inflation, interest rate increases.

    Across the board I think we will see sentiment improving. The capex cycle and the credit cycle is looking up and the NPA cycle is also low.

    It is only a matter of time before we see decent returns and that too across the board in the markets not just a narrow
    appreciation we are seeing just now.


    Do you find value in the market to buy at these levels or not or is it a bit of an avoid because you do not know which way the market is headed?
    I think that we can't exactly predict what happens in the US markets and if they go down another 10% from these levels then I would certainly say that our markets also will remain flat or we could have a 5-10% correction as well on a short term basis.

    But I am pretty certain that yes this is a good time to invest as there are businesses at reasonable valuations and there are also outstanding businesses which are quite expensive and the strategy has to be to have a mix and a blend of both types.

    I think a nice blend will protect the portfolio and insure that whatever trend is working in the market you are not clearly missing out. So there are adequate ideas in the market as well and there is enough in terms of stocks which are available at reasonable valuations where investors can put their money to work.

    Do you think there are still undervalued stocks that one can buy into? What are those stocks that you think can be bought even now?
    The banks have entered into a fantastic growth phase. Next two-three years look exciting for the entire sector as credit growth is picking up.

    So I would go with the large banks and would look at PSU banks as well. We are more overweight on banks than NBFCs because in terms of raising resources banks certainly have an advantage.

    There are a lot of choices as if you want absolute safety and true long term investing then you can go with the large private sector banks. But there is also a trading opportunity in the PSU banks across the board where we are seeing rerating of price to earnings, price to book and you could see a few dark horses in some of the new generation private sector banks as well.

    Then auto is revving up pretty well especially all the four wheelers. We saw the monthly numbers coming through. Maruti is actually going ahead and raising prices so that is beneficial for their operating profit margins so the entire auto, auto ancillary space is scaling up pretty well.

    Our top pick over there remains in the four wheeler space. M&M as well as Maruti I think should do exceptionally well going ahead. Some of the auto ancillary companies like Minda Corp, Minda Industries should also do pretty well.
    So there are a plethora of stocks that one could look at. If you have a longer term horizon of three-five years then I am pretty certain that the stocks which are trading at high PE multiple just now will surprise you on the upside when it comes to their earnings.

    Let us also get in your take then on the entire FMCG basket. How worried one would be with respect to the inflationary concerns? Are you expecting decent volume growth? Is it going to be across the board or are you very selective on picking out just the Nestlé’s and Britannia of the world or is it across the board?
    See our endeavour is to always go for companies which can create huge wealth going ahead and the Nestlé’s and the HUL's I think have passed their prime and their volume growth will be mid to high single digit and there is hardly much scope to increase operating profit margins as well. They are trading at expensive earnings multiple because of scarcity of the stocks in the secondary market and they are no longer the best play on consumption in India.

    We are very positive on consumption and the sector can be best played with stocks of companies which are engaged in retail or entertainment, hospitality.

    There are some fantastic new listings as well which have taken place in this sector and of course they are trading at expensive PE multiples. They are may be higher than even the FMCG companies but their growth rates are typically in the high teens or so and there is a huge run way for appreciation and expanding their volumes for these companies.

    Should we be looking at oil marking companies like HPCL, BPCL with the assumption that oil is lower and things will normalise?
    Sure, there is a trading rally over there, one cannot deny it. Their earnings certainly do better when oil prices are benign and we are entering into that phase. Their marketing margins will certainly move and you could expect typically marginal increases in volumes as well.

    But this is the dilemma of an investor that what he is going to focus on. When you are trying to build a portfolio which is a long term portfolio which you want to pass on to the next generation you want to divert your energies and attention on stocks which are going to be consistent performers and where there is a high degree or earnings visibility and stocks which have got outstanding business models.

    Oil marketing companies certainly do not kind of fit those criteria over there but if your entire focus is on trading portfolios and trading into stocks in and out and you are good at it, you are able to cut the losses, spot the bottoms and detect when the stocks are topping out then certainly we could look at oil marketing companies as well.

    It is just that in my experience of 30 years I have seen that investors who focus on good outstanding businesses bought at reasonable valuations have ended up creating huge value whereas investors who focus on ordinary businesses which are cyclical in nature which do well for a short period of time those portfolios have not really generated great returns.

    So I would say that depending upon your style of investing and your basic mindset you could go for trading stocks over there but the real money is in the long term secular growth stories and that is where I think the average investor should focus on.

    If I look at the outperformance this year for variety of factors whether it is valuation or cyclicality the outperformance of Coal India, NTPC, PSU banks these were the so called ugly ducklings of the last decade and they have become the swans this year. So these are not fantastic businesses or fantastically well run companies but they have been the darlings this year. How would you differentiate this year’s price action versus a style which you follow?
    The style which I am advocating is not an easy one and it will have its down years as well and you will have this feeling of being left out also at many points of time. But then I think that is where experience comes into play. I have seen and I have invested in all of these names and I have never really been able to get a good return on my investment in these companies. You think you can get in and get out but when you are actually doing it and actually have your investments and money in these stocks the exact point of entry and exits are very difficult and sometimes when these stocks have to correct it is very difficult to exit out of them. You always feel next quarter they will do better and the valuations are so cheap and there is a good dividend yield and you get into that comfort zone and you do not get out of these stocks.

    So I think every investor has to decide on his style and be consistent and be loyal to that particular style of investing. I know of many investors who are fantastic traders they have made great amount of money in such PSUs and low quality businesses as well but then they have the art and they have the knowledge and the skill set to decide and interpret when is a good entry point, when is a good exit point and that is something which is very difficult and it is not everybody’s cup of tea.

    What would be that level at which you would say it is time to buy IT? ?
    I am passionate about IT companies and maybe my bias is on the positive side always but these are good times I think from an entry perspective but you have to be very selective. So it is not going to be that every single IT company will have a decent growth rate. Now I think the time has come where men will be separated from the boys.

    We suggest traders should go for companies which have very specific and strong presence in key verticals which may not be impacted as much by the looming recession and slowdown which is there in the western world or look for companies which have excellent execution, very aggressive marketing and a great track record when it comes to surviving and prospering in difficult times.

    We are very positive on Tata Elxsi. The stock has also corrected from its highs significantly and if you are patient enough I think it will have the best in class growth rates and that holds true for Happiest Minds as well. And then there are the companies which have shown exceptional performance like Coforge. I am very bullish on the merged company LTI and MindTree, both the companies were performing exceptionally well prior to the merger.
    Valuations of all these companies is on the higher side but their growth rates also will surprise you going ahead. So I would go for high performers within the IT space.

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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