FIIs will be back with a bang in 2023; growth stocks will make a comeback: Amit Jeswani

“I am expecting a very FII kind of market next year and it will be good for growth investors. We have started buying consumer tech and hopefully that will do well for us. We are looking at high growth. In India you cannot bet on companies which grow 5-10% and expect that you will keep compounding at 20-25%,” says Amit Jeswani, CEO, Stallion Asset

What kind of ideas are you researching and have been adding in the last couple of months?
Inflation is peaking out globally. In 2021, from March to December, FIIs sold Rs 1.5 lakh crore worth of stock – nearly $20 billion. This year, they have sold broadly Rs 2.6 lakh crore. The FIIs in the last 18 months have sold Rs 4 lakh crore worth stocks.

I believe in 2023, they are going to come back with a bang. Inflation is going to come down, bond yields will come down and we are looking at a very lollapalooza kind of 2023 in our kind of stocks. If FIIs come, our kind of stocks do well, if it is only DIIs or retail, then value stocks typically do very well. FIIs buy growth, DIIs buy value. I am expecting a very FII kind of market next year and it will be good for growth investors like us. We are now five times more cognisant of the value that we pay till 2021.

I would say if a stock was growing at 40% till the time it was growing at 40% you would stay long but now you say I need to buy at the right valuation. So that is one change I would say we have done but we are very bullish and our portfolio in my humble opinion should do decently well in 2023. We will make changes, we are cutting our betas down like in October 2021, we have moved to low beta. Now, we are now moving back to high beta.

In the first phase, we bought an electric retailer in Bihar that has done well for us. We have started buying consumer tech and hopefully that will do well for us. We are looking at high growth. In India you cannot bet on companies which grow 5-10% and expect that you will keep compounding at 20-25%. That is not possible.

You have got a couple of retailers like DMart. It is a household name now as far as grocery retail is concerned. Trent too is evolving and some great commentary is coming from the management and Titan is a consumer retailer across segments. What is your hypothesis in this pocket, the consumer discretionary/retail?
All of these companies are growing at 20-25%. Titan three-year CAGR is closer to 28%; DMart revenue CAGRs will be closer to 21%. But this quarter onwards, that will move towards 25%. So why do we get that 25% growth and every year you keep taking market share away from other players like Trent which has gone from 200 stores to now 400 stores within the pandemic.

You spoke about an electronic retailer that has doubled store count during Covid and now doubling store count again in next two years. We need 25 good entrepreneurs who are hyper scaling and their ROICs are 25-30% plus. When one gets a combination of market leadership, growth, ROIC magic of compounding happens every three years and that will happen in any period – be it bear market or bull market.

Once you get them, just hold them for a long time and be aggressive on dips. That is all we do to be honest and you will see that in a lot of names in our portfolio that the growth and ROICs will keep moving higher from these levels and once you get these 30% growth, 25% growth, then market chases growth and that is how markets are.

Now also, the rally towards PSUs and the corporate lending kind of banks is because growth increased, the growth of NII of Axis Bank this quarter was 31%, the growth in NII of ICICI Bank this quarter was 26%, HDFC was at 18% and South Indian Bank NII growth was 37%.

When the low PE neglect starts showing growth for one-two quarters, the market bids them up very aggressively and that is what we are seeing. Chase the growth. If you get growth, value and neglect, that is where the largest money will get made but on the compounding side.

Let me divide the markets assuming Nifty has 1,000 stocks. There is a middle line 25 PE. On this side of the market are consumer and tech names which trade at 70 PE, 80 PE, 50 PE. On the other side are PSU banks and commodities which trade at 5 PE, 10 PE, 15 PE.

Every three-four years, 100 stocks move from the low PE category to the higher PE category and 100 stocks move down from the higher PE category to the lower PE category and this happens when there is a change of growth rate, change of ROIC or change of competitive advantage period and that is what we try to catch.

APL Apollo is now on this side of the basket. We bought it at Rs 3,500 crore market cap. Right now, it is at the side of the basket where the PEs are higher, 50 PE plus, ROCEs have moved north of 30%. This is where I say is the emerging monopoly basket and that is where the largest wealth creation happens.

We have got some compounders which are expensive on the right side of the basket. They keep growing at 25-30% but we also buy companies which are on the lower PE side but have attained market leadership. ROICs will improve to 25-30% and growth is also coming in and the biggest money is made when stocks move from left to right.