ETMarkets Smart Talk: Gautam Shroff of Edelweiss Securities on where to look for next set of multibaggers

“In the short-term, markets can remain volatile given the global macro-economic uncertainty and high valuations; however, from a medium-term perspective, we remain bullish," says Gautam Shroff, Managing Director, Head - Institutional Clients Group - Institutional Equities, Edelweiss Securities.

In an interview with ETMarkets, Shroff, said: “My investment mantra, business cycle – where we are on that front, if we are at the beginning of a cycle- cyclicals and leverage companies as the earnings swing can be disproportionate and similarly vice-versa” Edited excerpts:

After the US Fed meeting, do you see further tightening by RBI, and will that derail momentum on D-St?
The Reserve bank of India (RBI) could still do up to 6% repo and wait and watch for any global mayhem. India CPI will end the fiscal within RBIs comfort range, so our fight with inflation need not be that aggressive.

However, RBIs reaction function is tied to the US Fed indirectly through the capital flows channel. If flows dry up, then perhaps RBI may resort to a more aggressive stance.

MF data is encouraging when it comes to equity funds but the pace seems to be slowing down. More money is moving towards debt – why are investors putting money in safe haven?
Indian markets are close to life high, some profit booking by investors always happens, the best part is SIP commitment is only growing, steady state of inflows in Indian markets has been the stabilizer this year. Some excitement on back of expectations of global bond index inclusion.

Sensex reclaimed 60K recently while Nifty50 also managed to hit 18000 for the first time since April. The recent price action makes benchmark indices vulnerable to profit booking. Where do you see markets in the medium term?
In the short-term, markets can remain volatile given the global macro-economic uncertainty and high valuations; however, from a medium-term perspective, we remain bullish as –

a) India is one the few growth Bastions in the world.
b) Domestically balance sheets in great shape and the cost of reforms done- Its dividends lie ahead of us.

In a summit, FM asked India Inc. why they are not getting into manufacturing? Do you see increase in buying interest in this sector?
I think it’s only a matter of time before manufacturing kicks in until now interest levels were low as utilization levels were on lower side, however with utilizations picking up along with Govt. incentives, we think private capex should improve meaningfully from hereon.

Which sector will produce the next set of multibaggers?
Domestic-oriented sectors are where we see the maximum opportunity and growth potential.

Reasonable valuations and good opportunity lie with private banks, insurance and domestic auto.

What is working in favour of specialty chemical space? What are your top bets?
Chemical stocks have been witnessing some or the other positive tailwind which has been driving structural growth in the sector. The latest development in the sector is the energy crisis in Europe.

This is likely to push the cost of many chemical manufacturers in Europe and will drive the realisations globally. Many of Indian players in commodity chemicals like caustic soda, soda ash, and TDI will benefit.

We still stick with specialty chemical players or players who are moving up in value addition.

Our preferences is – Deepak Nitrite, Jubilant Ingrevia, Aarti Industries, and Galaxy Surfactants. While we continue to like the entire specialty chemical space.

Where is the smart money moving?
India’s outperformance to the globe is my answer, smart money is positioning very well in India.

Please share your investment mantra. Any checklist you follow before buying the stock?
My investment mantra, Business Cycle – where we are on that front, if we are at the beginning of a cycle- cyclicals and leverage companies as the earnings swing can be disproportionate and similarly vice-versa.

I look at 4 of the below before buying any stock

1. Track record of cash generation
2. Capital Allocation
3. Valuation
4. How is market share shaped up- gives me a good reflection of the company’s strategy.

How important is booking profits in MFs or direct investing? Or should one adopt a buy-and-hold strategy?
The choice depends on the investment horizon, since am so close to the markets, I time the investment based on the business cycle and liquidity environment; However for long-term investors- valuations at the entry point should be the critical driver of Buy and hold strategy.

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