It was a roller-coaster ride last week for the markets
that reacted to global cues. Vikas Khemani
, founder, Carnelian Capital Advisors, tells in an interview that as the world is changing to new ways of technological adoption, fresh companies will come to the markets
in search of money. Edited excerpts:
How vulnerable are the markets to a meaningful correction now?
The markets are always vulnerable to corrections as they depend on a lot of unexpected factors — ranging from politics and geopolitics to inflation, monetary policy, etc. Many of these factors never happen and some happen unexpectedly. Investors always get hit when the markets are unprepared. That said, it is futile to manage these. Real money in the market is made by remaining invested for long. India is in one of its best super-cycle periods for the next five-seven years. Waiting for a market correction and optimising entry time in the markets will be akin to missing the woods for the trees.
How does one manage risk then?
That depends on time and the type of risk one is managing. There are three type of risks: Type A — total loss of capital; type B — temporary MTM (mark-to-market) loss; type C — opportunity loss (loss of investing in wrong stock/asset etc). Type A and C risks are highly controllable through efforts, work, diligence, and knowledge. Type B risk can never be controlled or predicted as it always comes suddenly from unexpected sources. Type A risk occurs from either investing in inferior quality of management or due to business disruption. Type C risk can come from lack of knowledge, human biases, and many psychological factors. Both Type A and Type C risks are where one should spend a lot of time and effort, especially when we know that they are highly controllable. That said, most investors end up worrying about Type B risk.
How do you see the liquidity situation playing out globally against the backdrop of recently released minutes of the FOMC (Federal Open Market Committee) meeting? Will India still be on investor’s radar?
Liquidity is here to stay for a few years. Easy fiscal policy would be propelling growth, and as growth picks up, monetary easing can be unwound in a non-disruptive way. India is well placed from an investing point of view. There is no other market that offers such attractiveness. We have a very balanced story on exports, consumption, and investment. My personal view is that we all will be surprised by the flows into India over the next few years.
What has been your investment strategy in 2021, thus far? Which are your overweight and underweight sectors? Any expectation from the June quarter and FY22 numbers of India Inc?
We have remained fully invested. Our main investment themes are information technology (IT), banking, financial and insurance (BFSI), manufacturing, and consumption. The June 2021 quarter numbers should be on expected lines. Sectors like IT and Pharma should not be impacted by the partial lockdowns and are likely to continue to do well. The numbers for others would be mixed, given the impact of the lockdown and the second Covid wave.
What structural opportunities you see in India?
India is in a super-cycle and we will see broad-based growth going ahead. Since the Covid pandemic, IT and manufacturing are two new major accelerators of growth and create an unprecedented multiplier impact on the economy. I see good job creation, led by both sectors which, in turn, will be demand boosting. These two themes will have 10 times the impact of MGNREGA on demand in the next five years.
A number of experts had labeled the rise in commodity prices as a "commodity super cycle" a few months ago. Where are we in terms of positioning in this cycle now?
We are in a good cycle, as far as commodities are concerned. Globally, huge sums of money are being spent on infrastructure and this augurs well for commodities. I think price rise is quite done but now growth will come from volume expansion as the world moves to normalcy.
Are realty stocks a good play in the broad infra theme?
The real estate sector is coming out of 10 years of consolidation. Demand, going ahead, is likely to be strong. Rera — Real Estate (Regulation and Development) Act — has changed the sectoral dynamics in favour of large and strong developers. We will see massive wealth creation in realty stocks over the next 10 years.
How are investors looking at new-age businesses after the Zomato IPO?
New tech and platform-oriented plays are very promising and India has seen only a few of them. As the world is changing to new ways of technological adoption, many new ideas, plays, and companies will come to the markets in search of money and investors will get a good opportunity to invest in them. That said, there is a long way to go. The markets and investors will create challenges in terms of how to value such opportunities but that’s always true with new things.
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