Most of the companies which have created wealth for investors in the last decade are from the financials, consumers, and IT sectors. “These three sectors are a major part of our growth story and will continue to deliver in the future,” Sheetal Malpani is the Chief Investment Officer and Head of Equity at Tamohara says in an interview to Moneycontrol.

He advised that one should look for companies from these sectors as one can continue to expect good investment opportunities offered by some of the companies, especially in the mid-cap segment.

The last four months have been really good for mid-cap and small-cap space, and the returns are way above the average. “Sustaining such returns in the short turn is not an easy task. However, if one has to consider the 5 years horizon, the rally still has a long way to go,” says Sheetal with over 14 years of experience in the Indian capital markets.

Q: Do you still see opportunities in the midcap IT space?

IT is not a homogeneous sector and it consists of traditional service providers, ER&D, and product players. It is important in which segment you are operating. While large companies may not be showing major growth due to the slowdown in Europe, few of the companies in the midcap space are growing at double the industry rates.

On the margin front also, there has been an improvement. This segment still offers good investment opportunities.

So overall, IT as a sector may not have done well in the recent past, but selective midcap companies which are showing good growth can still be looked for as an investment opportunity.

Q: Where do you want to put your money – real estate or ancillaries?

With RERA regulations in place, the sector has gone through a consolidation. If one has played the sector through ancillaries like pipes, cement, and tile, it has been more rewarding in the last decade.

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This is an important sector for India and one cannot ignore it. For some of the real estate stocks where the balance sheets are healthy and have sizable rental portfolios, one should have a look as it can offer good returns in the coming years.

Q: Three sectors that you can’t avoid owning in your portfolios?

Most of the companies which have created wealth for investors in the last decade are from the Financials, Consumers, and IT sectors. These three sectors are a major part of our growth story and will continue to deliver in the future. One should look for companies from these sectors as one can continue to expect good investment opportunities offered by some of the companies, especially in the mid-cap segment.

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If I have to highlight one space, it could be companies operating in the luxury segment. An increasing affluent class can drive up the growth rates in this space. A growing middle class and an increasing upwardly mobile population have changed the mindset of young Indians. A small, but significant portion of Indians are slowly getting over “Roti, Kapda aur Makan” needs and are looking for lifestyle and luxury items. For them, the basic needs are taken care of. Now, it is time to satisfy their wants.

Their propensity to spend should help companies in this sector to deliver good growth. One should look out for players who can cater to this rising demand.

Q: What is your investment philosophy? How do you manage the risk and exit?

We want to look for companies that are growing more than the GDP, anything upward of 15 percent interest us. And if the company is gaining market share in its segment and margins are improving, we are very much interested. This coupled with a good management track record and normalized return ratio upward of 15 percent closes the argument.

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While these are parameters we are looking to buy into, we always make sure we keep our growth and margin assumptions reasonable and do not buy into too much optimism.

I am not emotional about my investment. The simple fact is that for whatever reason we make an investment and if that is not working out, we have to take a hard look and make an exit. Having an ego is the most dangerous thing in the market.

For us, whenever the companies falter in growth coupled with pressure on margins and declining market share, we exit.

Q: Do you think it is the right time to have AI stocks in a portfolio?

Everyone is looking at the AI (artificial intelligence) sector with a lot of excitement as the sector offers immense opportunities in years to come. One also has to understand that AI space is complex-, and requires a lot of domain knowledge and out-of-the-box thinking.

I feel there are not many AI players in the listed space which can offer good investment opportunities. So as and when a new player will get listed which can offer a good opportunity, we will look at it.

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Q: Are we at the beginning of a bull run in the midcap and small-cap space, considering their run in the current financial year?

The last four months have been really good for mid-cap and small-cap space, and the returns are way above the average. Sustaining such returns in the short turn is not an easy task. However, if one has to consider the 5 years horizon, the rally still has a long way to go.

At the same time, one has to always remember that small and midcap investment comes with a high volatility tag. One has to live with high volatility and if you can stomach that and have the ability to add on every correction, this space should be looked at.

 

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