Ashutosh Tiwari, who has over 10 years of experience in capital markets under his belt, is of the view that investing requires efforts in terms of reading annual reports, analysing financials, business prospects, as well as common observations of different businesses/brands around us, he said in an interview with Moneycontrol’s Kshitij Anand.
Tiwari is Head of Research at Equirus Securities. He said that one should focus on companies with strong free cash flow generation track record, low leverage and better ROCEs. Here are edited excerpts from that interview:
Q) What a ride it has been for the bulls – both Sensex and Nifty50 climbed crucial psychological levels after the Budget 2021. What is the way ahead of markets?
A) Over the last 7-8 years, we have seen a phase of earnings downgrades, as pick up in the economy has not been on expected lines. However, now we might be entering a phase where earning upgrades will happen driven by:
Farm incomes are likely to remain on the higher side due to a) better crop as sowing was good, b) water reservoir levels are higher levels, c) Agri commodity prices going up globally.
Infra & construction is expected to pick up going ahead due to higher tendering on the roadside by the National Highway Authority of India.
And, real estate sales are improving which can give a boost to construction activities, Capex cycle is further expected to get a boost from —
a) increased capital expenditure plan of government in budget,
b) localization by industry as a number of companies faced issues in imports post COVID,
c) PLI schemes can also spur capital spend by companies, especially those who are already exporting COVID forced companies to look at cost structures and we have seen margin expansion of companies’ vs pre COVID, part of which will sustain going ahead.
Q) The underline assumption in the equity market is a recovery in the economy. We are seeing some green shoots in the economy but do you see any risks to the ongoing rally both local and global?
A) Liquidity and depreciation of USD are major factors behind rally of emerging markets and hence reversal in these will be key risks to further rally.
Q) Common argument which is given is premium valuations are sustainable in light of economic and earnings upcycle. Earnings upgrades would support and drive valuations. Do you agree?
A) There might be small corrections, but structurally we are in an upcycle where earning upgrades will support valuations.
Also, with a decline in interest rates, return expectations of investors goes down and hence higher multiples if other factors remain constant.
Q) So where are the opportunities in the market are which investors can grab post Budget 2021?
A) We see better growth in the manufacturing sector due to pick up in infrastructure, construction and capex, and hence industries and companies benefitting from this trend will do better.
We are more positive on companies from Capital goods, Industrial, Infrastructure, Metals, Financials, Auto and Consumer discretionary sectors.
Q) Retail investors have consistently pulled out money from MF and January was no exception but SIPs continue. What does the trend suggests – does it mean that retail investors who can manage money are using the trading channels to route the money or there is larger trust issue?
A) Investors have made easy money post Mar’20 as markets bounced back sharply and therefore lot of retail investors believe that it’s better to invest directly in stocks.
Q) How should investors invest money – go the SIP way or make diversified portfolio of 15-20 stocks or mix of both to take leverage of growth push seen in the economy?
A) Investing require efforts in terms of reading annual reports, analysing financials, business prospects, as well common observations of different businesses/brands around us.
Those who can spend time on these can invest through quality portfolio of 15-20 stocks, but for other people, it makes sense through SIPs in quality funds.
Q) Your checklist to investors on how to pick stocks in 2021 or post COVID as the pandemic changed a lot of things, the way business work, the metrics etc.
A) Investing style should not change even with circumstances like the pandemic, may be some sectors are positively or negatively impacted. One should focus on companies with strong free cash flow generation track record, low leverage and better ROCEs.
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