Journey from $3 t to $4 t could possibly take 3 years but there are stock-specific opportunities: Sandip Sabharwal

Market Outlook

The move in the markets will become broad-based as new companies and industries do better, and my expectation is that the journey from $ 3 trillion to $ 4 trillion could possibly take 3 years, however, stock-specific opportunities will be huge, Sandip Sabharwal of said in an interview with Moneycontrol’s Kshitij Anand.

Sandip has a knack for picking out multibagger stocks. He is part of equity markets for 25 years now and has managed mutual fund schemes for over 15 years. His approach towards picking stocks is backed by fundamental research as well as market analysis.

Edited excerpts:

Q) How was your journey as Mcap hits $ 3 trn? Any personal experience which you would likely to share when you entered markets and started trading?

A) The current journey of the markets from $ 2 trn to $ 3 trn has been both of surprise as well as a sense of relief as post-COVID wave breaking out in 2020 there was complete uncertainty and there was a possibility that markets could fall off the cliff.

However, timely actions by the Monetary and Fiscal authorities prevented that led to a strong recovery. When I entered markets 25 years back markets were very narrow, information dissymmetry was very high, there was almost no internet and there was a lack of transparency.

Things have continued to change subsequently right from the move to online trading to information being freely available. Trading costs being just 5-10% of what they were in the mid-1990s etc.

The depth of the markets and the number of market participants have expanded exponentially making the markets more efficient.

The edge for investors or market participants is no longer the availability of information, but the edge is how the information is getting analysed.

However, the market psychology remains the same and that provides an opportunity for contrarian investment continuously.

Q) Mcap up $ 3 trn – when do you foresee 4 trn for Indian bourses?

A) Given the recent upmove and valuations the journey towards $ 4 trillion could be slower as many of the companies contributing to the higher market capitalization today are very highly valued.

However, the move in the markets will become more broad-based as new companies and industries do better. As such my expectation is that the journey from $ 3 to $ 4 trn could take possibly 3 years however stock-specific opportunities will be huge.

Q) In terms of valuations — Nifty 12M fwd P/E at 10% premium to the long-term average. Do it suggest caution or do you think with earnings likely to play catch up these valuations could stay?

A) Actually valuations are higher than this and around 25% premium to the LTA as most analysts have not factored in the impact of higher inflation and costs into their models.

The second wave will also hit current year growth and the overall impact of the second wave on consumption might also be worse than expected. In this situation, I would think that being cautious at this stage makes sense.

It is important to evaluate where you are investing as many fancied stocks are trading at PE of 80-100X earnings which reduces future returns significantly.

Q) Small & Midcaps seems to be hogging the limelight – what should be the strategy?

A) Investors need to be careful where they are investing. History suggests that in a frenzied move, all cats and dogs also move in the same direction.

However, the opportunities are there. Companies focused on investments and capital goods are still under-owned and are available at reasonable valuations.

These are various segments where investors can focus on. Select companies in pharmaceuticals, chemicals, agri field etc. are also doing well and many are post-COVID recovery plays.

Most of them are still available cheap as the near-term earnings picture is unclear. Yes, there are opportunities.

Q) How did you fell in love with D-Street? Your first trades and subsequent lessons?

A) My love with D Street started when I got selected to do Summer Training at SBI Mutual Fund from IIM Bangalore where I was pursuing my PGDM.

Before that, I had not been exposed to the stock markets at all. I loved the research, trading and investing journey that I was exposed to.

As a result, when the final placements came I decided to take up the offer from SBI Mutual Fund to join them as a Research Analyst. That started the journey and as they say, rest is history.

As a research analyst initially I was not in investments and personal investments were more towards highly risky small caps where I actually lost money.

Slowly the investment philosophy changed towards buying companies with durable business models and focusing on the risk-adjusted returns. Over time I have become a realistic bull from an outright bull. This has worked well.

I started off my career in funds management as a growth-oriented fund manager as in the years 1998- 1999 value investing was more or less a dead concept and the only stocks that were performing were growth stocks in the TMT space.

Learning of that bear market made me much more open-minded in evaluating stocks across sectors and giving due credit to value investing. This is because I believe that value without growth finally does not get translated into positive stock price movement.

A large number of companies remain cheap forever as they have consistent low growth or slow growth earnings which when adjusted for inflation do not provide any real returns to investors. Earnings growth and earnings outperformance is the key to positive returns from stocks.

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