“We continue to invest in four broad themes: Digitisation, financialisation, specialised outsourcing, and consumption,” Siddharth Mehta, founder and investment chief at Bay Capital, said in an interview to Moneycontrol.
He added that Bay Capital continues to be excited by the long-term structural opportunity in India, notwithstanding the near-term challenges.
The investment firm does think that the next three to six months might be challenging but for a long-term investor who is able to take a five year plus view, this period presents a very good buying opportunity. Mehta advised that investors should use this period to buy into high-quality businesses as he believes these will be the outsized winners in the times to come.
Do you think new-age tech companies will delay their initial public offering (IPO) plans especially after the already-listed new age companies fared quite badly in the recent turmoil and corrected more than others?
It is true that the market environment has changed significantly between last year and now. There are some businesses that have deferred their IPO plans on account of volatile market conditions. That said, the recent IPO and listing of Delhivery, India’s largest e-commerce logistics business, has shown that good businesses with scale, dominant market positions and competitive advantage, large market opportunity, and clear path to profitability will be well received by investors if they are attractively priced.
As and when the environment stabilises, we are likely to see some other high-quality tech businesses come to the market.
In addition to above, are you still bullish on new-age tech companies including Paytm, Policybazaar, CarTrade Tech, and Delhivery?
We have always been very selective in evaluating some consumer internet/tech businesses. We look for businesses that have achieved scale, a dominant leadership position in the segment that they operate in, a clear competitive advantage, cash on their balance sheets with limited burn to fund growth, and a very clear path to profitability.
We think about businesses that are building uniquely Indian scalable solutions to uniquely Indian problems.
We prefer businesses that exhibit these characteristics and then believe in owning them for the next 7-10 years without worrying too much about near term volatility.
Indian markets have seen a correction in line with global trend. So, have you spotted any big investment themes in India?
We continue to be excited by the long-term structural opportunity in India, notwithstanding the near-term challenges. We continue to invest in four broad themes: Digitisation, financialisation, specialised outsourcing, and consumption. All of our portfolio businesses are beneficiaries of one or more of these themes.
The IT sector, which was one of the biggest gainers since 2020, was slaughtered in the current turmoil. Recession fear is one of reasons behind this correction, though companies have big order books. What are your thoughts?
The IT businesses have had a period of significant outperformance since the outbreak of the pandemic. A large part of the outperformance and stock returns have come on account of a massive re-rating of the entire sector. As the probability of a recession in the US has increased, there are renewed concerns in some cases around a slowdown in discretionary IT spends and this coupled with lofty valuations has resulted in a downward adjustment in stock prices.
As far as India is concerned, considering the global environment, are we done with the correction or the worst is yet to be over?
Trying to predict the bottom is a futile exercise. We do think that the next three to six months might be challenging but for a long-term investor who is able to take a five year plus view, this period presents a very good buying opportunity. Investors should use this period to buy into high quality businesses as we believe these will be the outsized winners in the times to come.
Now the Street knows inflation risk, recession fear, faster rate hikes by central banks, geopolitical tensions, earnings downgrades, FII selling, etc. Do you think the market fully priced in all these risk factors? Also have you noticed any other risk factor that the market has not yet priced in?
Many of these factors are known and some of these factors are the “known unknowns” such as the duration of the Russia-Ukraine conflict and its effect on supply chains and the price of oil and gas or indeed China’s zero Covid policy and its effect on global supply chains.
One of the key global macro risks is that there is a longer than expected recession in the US and the Fed slams on the brakes and tightens financial conditions far more than expected.
Just as markets tend to get stretched in exuberance on the upside, there is a possibility that there is an undershoot on the downside and this will provide a very good buying opportunity for a long term oriented investor. The essence is to be selective and discerning about what one is buying and buy with a long term view.
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