Abhay Agarwal is the Founder and Fund Manager at Piper Serica.
Daily Voice | Use current fall to pick tech leaders to get tremendous value over next 5-10 years, says Abhay Agarwal of Piper Serica
Daily Voice | These 5 announcements in Budget 2022 could lift market mood on February 1, says Abhay Agarwal of Piper Serica
Because of elevated valuations and global correction in tech stocks, many leading stocks have seen sharp corrections from their highs. “Investors will do well to consider investing in tech leaders that have a profitable business model,” says Abhay Agarwal, who is the Founder of Piper Serica in an interview to Moneycontrol.
Finance Minister Nirmala Sitharaman on February 1 will present the Union Budget which will be a great opportunity for the government to showcase its intent with growth-oriented policies, says Agarwal, adding if there could be simplification of GST rates and tax incentives for long term investors along with other three announcements, there could be rally in the market on budget day.
Do you think the Union Budget 2022 would be a game-changer and why?
The budget will be a great opportunity for the government to showcase its intent with growth-oriented policies. We do not believe that budget announcements are going to be so surprising that it will make the budget a gamechanger.
Also read – Budget 2022: It is time jobs become the centre of Budget
In a large country like India, all changes take time and it is for the government to ensure that it is allocating capital and providing policy support to the right initiatives that lead to long-term economic growth.
What are the sectors to focus on as we approach Budget day?
Healthcare, infrastructure, renewables, real estate, education, and energy will be some of the sectors to focus on.
Also read – Union Budget 2022: Lawyers seek tax benefits, push for legal reforms
What could be those announcements by Finance Minister that will lift market sentiment on the budget day?
a) Allocating capital to long term development initiatives like infrastructure, healthcare, and education
b) Making it easy for foreign capital to come into India by removing unnecessary litigation and harassment.
c) Tax incentives for long term investors
Also read – Budget 2022: Does public opinion matter?
d) Simplification of GST (Goods and Services Tax) rates and implementation
e) Reduction in STT (Securities Transaction Tax) and dividend tax
Have you spotted any themes that have strong futures but corrected sharply in the recent fall?
We believe that tech companies that are using digital means to deliver their services and products will disrupt many existing industries like food & beverages (F&B), financial services, advertising, education, healthcare, travel, etc, and create tremendous value for their shareholders over the next 5-10 years.
Also read – Key Policies from Budget 2021 To Know Before the Upcoming Budget Session
However, because of elevated valuations and global correction in tech stocks, many leading stocks have seen sharp corrections from their highs. Investors will do well to consider investing in tech leaders that have a profitable business model.
What is the major reason behind the current sell-off – Fed stance, FII selling, inflation concerns, Union budget, or earnings? Do you expect more volatility in the market in the rest of 2022 given the rising expectations for more rate hikes by Federal Reserve and the end of easy liquidity soon?
Global investors had become used to cheap liquidity. This cheap liquidity found its way to new asset classes like cryptos, NFTs (Non-Fungible Tokens), and hyped-up tech investing themes. With rate hikes a certainty now there is a sharp rush to reverse the liquidity flow. This reversal has led to sharp corrections across the board in hyped-up assets.
We believe that this correction will continue till the froth is removed from the market. We believe that markets will be on the edge this year every time a Fed meeting comes up. Fed commentary has been most hawkish that the new generation of investors have ever seen and, therefore, we expect sharp volatile moves throughout this year.
Do you think overall December quarter earnings performance, so far, is satisfactory or has raised any concerns?
It has been a mixed bag. While toplines have grown, we are seeing the pressure on margins across the board. With a sharp rise in input prices, we are seeing even leader companies cutting their margins rather than pass on the complete price hike. Therefore the inflationary pressure is still muted.
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We believe that the pressure on margins will continue in the current quarter also till commodity prices cool off. The saving grace is that consumer demand continues to be robust. Also, the balance sheets appear in better shape than ever.
In the recent correction, 2021 IPOs including RateGain, Shriram Properties, Star Health, Paytm, SJS Enterprises, PB Fintech, Fino Payments Bank, Aditya Birla Sun Life AMC, Nuvoco Vistas Corporation, CarTrade Tech, Krsnaa Diagnostics, Windlas Biotech, Glenmark Life Sciences, Kalyan Jewellers, and Suryoday Small Finance Bank corrected sharply in double-digit. Should one buy all these stocks now and why? Or should one wait for more downside? And are these stocks now available at attractive valuations after recent correction?
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It is difficult to bundle all companies that have been listed recently in one bucket since they have different business models and are from different industries. Many of them used a bullish IPO market to overprice their shares and are now suffering for the same. We believe that investors should not be driven by the discount to the IPO price but look at each company independently to see whether it is available at a fair price.
Historically, we have seen situations where good companies have traded well below their IPO price in a correction and then gone on to become multi-baggers. Investors should look at this list to identify companies that firstly have a profitable business model and have a substantial share in a fast-growing industry. They should stay away from companies that have no clear path to profitability.
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