Jiten Parmar of Aurum Capital
“We have avoided generic export pharma companies and IT services completely. IT services is something which we will look at once we have some more correction. We will wait for better value,” Jiten Parmar, Co-founder of Aurum Capital told Moneycontrol in an interview.
However, the small case manager with more than two decades of experience in the capital markets likes 9 themes including banking & financials, capital goods, manufacturing, and infrastructure.
Regarding the Union Budget 2023, Parmar feels that it will be growth-oriented. “We expect thrust on infrastructure development,” he said. Edited excerpts:
Should investors look at electric mobility themes to get multibagger returns in coming years?
Electric mobility is definitely a theme to look at. Adoption is definitely improving. 2-wheeler is where there has been the fastest adoption. And that will grow the most and the fastest. Followed by 3 wheelers and passenger vehicles. There are multiple ways to play this.
It could be OEMs (original equipment manufacturers), auto ancillaries, battery manufacturers, EMS manufacturers, and so on. Of course, amongst OEMs, time will tell who are the winners. Many big players are just testing the waters.
As of now it is difficult to judge whether the traditional OEMs will succeed or the incumbents will. But many incumbents have taken head-starts. This theme will definitely throw multibaggers in the future.
Do you expect earnings downgrade as well as cut in GDP growth forecast in 2023?
Some earnings downgrades are possible. GDP growth for FY24 should be above 6 percent. Which we think is good, as US and Europe might degrow. Of course, it all depends on what happens with the current Covid wave in China and if it spreads around the world.
But whatever I have read and understood, I think it will not be a big threat for India. We need to look at the long-term picture for India. Our per-capita income growth is in a zone, which will fuel consumption. It could be a golden period for the country.
Of course, it will not be a linear growth. There will be short-term hiccups in between the $ 5 trillion and then $ 10 trillion GDP journey. This journey we will definitely make. That’s the key thing to focus on.
Do you think the year 2023 is going to be challenging one for equity markets?
We do think 2023 should be a good year. But we must be extremely mindful of what we buy. It’s also important to know what to avoid. We think companies where valuations are very high and the ones which have PEG > 3 (price-to-earnings-to-growth) should be avoided. The risk-reward ratio is just not favourable.
And even though many companies in that basket are quality companies, one can have a significant time correction and periods of no or very low returns. Value theme will continue to do well. One more thing going for India for 2023 is that we have general elections in 2024. And the government is always in spending mode in the year before elections. And most of the past data suggests markets doing well in the year before the elections.
Do you think it is the right time to bet on domestic themes than export-oriented themes?
We would bet on domestic themes primarily. At the same time, there could be good opportunities in companies which will benefit from the Europe+1 and China+1 theme.
Which are the themes that you have on your radar for coming years?
Financials/Banking, Capital Goods/Manufacturing, Infrastructure, Chemicals, Auto/Auto ancillaries, Cement (midcap) are some of the sectors we like.
Financials/Banking – The worst of NPA (non-performing assets) crisis is behind us. Banks have written-off majority of NPAs. And PCR (provisioning coverage ratio) in many banks is quite high. Credit growth is at one of the highest levels in the last 10 years. There are some risks too. Deposit growth is not able to match the credit growth and hence many banks have increased deposit rates. Of course, it is also a function of general rise in interest rates. We need to closely monitor if NIMs contract. Overall, we believe at least the next 2 years can be good for this sector.
Capital Goods/Manufacturing – This sector had a long downcycle of 8-10 years. We initiated it at peak pessimism levels as we were getting on ground reports of capex picking up. This sector will also be beneficiary of Europe+1 and China+1.
Infrastructure – This sector has some good companies available at very attractive valuations. We think this could be one of the stellar sectors of 2023. There is a lot of focus on infrastructure development by the government.
Chemicals – Falls in the short-term headwinds, long-term tailwinds category. This sector should do well for many years.
Auto/auto ancillaries – This sector had many years of downturn. And can do well for sometime.
Cement – This sector has had a tough time. We believe things will improve mainly from Q4. Valuations in many midcap cement companies are very reasonable.
We have avoided generic export pharma companies and IT services completely. IT services is something which we will look at once we have some more correction. We will wait for better value. As we believe they will continue to face near term headwinds
Do you expect any major announcement from Finance Minister Nirmala Sitharaman in the upcoming Budget 2023?
This is the last full budget before the 2024 general elections. We are of the opinion that the Budget will be growth-oriented. We expect thrust on infrastructure development. Of course, things like an increase in Equity Capital Gains tax can be a dampener. That is something markets may not like and there could be a reaction to that.
Will 2023 be the year for midcap and smallcaps over largecaps or vice-versa?
We are market cap agnostic. We believe in investing where there is value. Many largecaps, even after some corrections are still at very high valuations. And may continue to be sideways or down. Of course, sometimes largecaps also are available at reasonable valuations, primarily due to short-term challenges.
If we understand the business and have a handle on future growth and valuations are supportive, we can invest. We have a few large caps in our strategies. We invested in them when they were available at good valuations. We have a higher number of mid and small caps stocks in our strategies. Primarily due to valuations being supportive. And risk-reward being more favorable.
The last couple of years, broader markets have done better than largecaps and we expect this to continue for 2023 as well.
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