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    ETMarkets Fund Manager Talk: Looking for a bottom-up type of investment? This portfolio manager has multibagger ideas

    Synopsis

    Broadly at a portfolio level, calendar year 2022 was more or less flat, however, at the company level, a couple of our top holdings like JK Paper and LT Foods have almost doubled from the last year’s valuation.

    A1S_8774 02ETMarkets.com
    We have seen some good performance in the current year of 2022 from the smallcap universe as well, however at the index level, we have seen largecaps doing better than mid and smallcaps, which should do a catch up in the coming months.
    Despite the high volatility in Indian markets this year, Arpit Shah of Care PMS has managed to identify multibaggers through a bottom-up approach of investment. The portfolio management services firm’s top holding stock JK Paper has given multibagger returns this year.

    “JK Paper is the best performing paper company and available at attractive valuation considering the ongoing growth trajectory with support of global paper prices,” Shah, the co-founder and investment director of the PMS told ETMarkets in an interview.

    Currently, the firm is adding companies in the education sector, textile outsourcing, and kitchenware. Edited excerpts:


    Indian has been the best performing market in 2022. Do you see India repeating this show even in 2023?
    We strongly believe that India can certainly outperform global markets based on the current macro as well as micro data points. Europe, UK and the US recession is inevitable for may be 2 quarters only, and China opening up will certainly help their market to recover. However, India will grow either at par or better than China.

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    In the last one year, there have been enough incidences whereby we can say that we have decoupled ourselves from the global stock market, especially with respect to economic growth.

    When do you think we will reach the peak of interest rate hikes, and see global macroeconomic headwinds ebbing since recovery remains uncertain in the US, UK and China?
    For India, the recent inflation data of 5.8% is at a 11-month low and within RBI extended limit of 6%. Further, with crude oil prices coming down, better monsoon and better management of supply side issues, it is very much likely that inflation rate will remain at current range. Hence, RBI’s focus should shift to growth.

    We believe that the interest rate is near its terminal value and with 1 hike of 25-35 bps, it should peak out.

    But it is difficult to predict how the US Fed and other central banks will behave as on one hand, they have higher inflation and poor growth and on the other hand, they are having good micro data like lower unemployment.


    What were your major bets in 2022 and which ones you exited? Can you also briefly explain the rationale?
    Broadly at a portfolio level, calendar year 2022 was more or less flat, however, at the company level, a couple of our top holdings like JK Paper and LT Foods have almost doubled from the last year’s valuation.

    JK Paper is the best performing paper company and available at attractive valuation considering the ongoing growth trajectory with support of global paper prices.

    Strong exports and domestic markets and the shift from unorganised to organised segment helped companies like LT Foods to increase their market share. In addition to this growth, management was focused on reducing the debt and strengthening the balance sheet, and regular interim dividends were good signals. The company trading at an attractive valuation is the key rationale for us to stay invested as we strongly believe a lot of value unlocking opportunities are still possible.

    With respect to exits, we have reduced exposure in the IT sector (full exit from NIIT) and textile sector with full exit from Gokaldas Exports Ltd.


    Which are the major sectors you would bet on in the near-to-medium term and why?
    We follow a bottom-up stock specific approach. As you know it’s a continuous process and hence, we keep identifying companies which can grow their businesses in double digits and are available at reasonable valuation. As mentioned in one of the earlier questions, presently we have exposure in paper and packaging, metal and minerals, construction materials, auto ancillary, etc. where we see growth coming, in addition to other companies where it’s more to do with the merits of specific companies.

    Which are the areas you are looking at for an opportunity to deploy funds?
    We follow a bottom-up approach for selecting a company, so we don’t give industry specific views, however recently we have added auto ancillaries to our portfolios. We got some great opportunities in railway PSU stocks. Currently, we are adding companies in the education sector, textile outsourcing, and kitchenware.

    Themes like Make in India, PLI, and China+1 is 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?


    Definitely yes, and we want to add one more theme i.e. Europe + 1, on account of the present energy crisis. Indian manufacturers are seeing a stronger demand and better prices temporarily. As we focused on bottom-up stock selection, we are giving equal weightages to all the themes mentioned above in addition to our evaluation criteria.

    Make in India is a serious initiative. The production-linked incentive schemes announced are already resulting in good and big investments in the manufacturing sector, right from mobile to automobile, to chip to toys. Everyone is exploring India for their manufacturing outsourcing as an alternative to China.

    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?
    India as a market has equipped itself to transform to the manufacturer of the world. Dedicated funds for India is unavoidable for FIIs. Outpacing China is difficult to judge at this point of time, as the unlocking of its economy has just started happening. So, one can see good growth in the next few quarters there. But we may not be far behind like earlier years in terms of growth which will translate into fund flows.

    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?
    Definitely. However, one point that I would like to highlight is that the smallcap universe is bigger unlike largecaps where you are limited to top 100 companies by market cap. We have seen some good performance in the current year of 2022 from the smallcap universe as well, however at the index level, we have seen largecaps doing better than mid and smallcaps, which should do a catch up in the coming months.

    (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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