Dalal Street Voice: Want to create wealth? Stick to companies with capable and honest management, explains Gautam Sinha Roy

History has proven that individual stocks are a good way to create wealth over the long term. We look for strong companies with capable and honest management teams, Gautam Sinha Roy, Senior Vice President & Fund Manager – Investment, ICICI Prudential Life Insurance – said in an interview with Zeebiz’s Kshitij Anand.

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Gautam has 17 years of experience, predominantly in equity research and portfolio management. In his last assignment, he was managing funds of over $2 billion.

Edited excerpts:    

Q) What is your view on markets after the roller coaster ride so far in November?

A) There has hardly been any correction in this rally which began in April 2020, making this one of the longest bull market runs without a meaningful drawdown.

So, some cool-off was on the cards which will be an opportunity for markets to consolidate. The RBI has been very clear that it wants to prioritize growth and has done a stupendous job of keeping the economy on its feet during the extraordinarily challenging times of the last two years.

With economic growth on a strong footing, the need for a less accommodative monetary policy stance maybe felt. This is a “risk-off” factor for markets.

Q) You have decades of experience under your bets, what is your winning strategy to picking stocks?

A) At the core, we are long-term investors. History has proven that individual stocks are a good way to create wealth over the long term. The wealth creation impact of individual stocks could be through consistent compounders or sharp movers.

In both cases, we look for strong companies with capable and honest management teams. Typically, these businesses are growing well based on underlying themes, which act as the proverbial wind beneath their sails.

Cyclical factors and stock-specific factors like balance sheet repair and management change can act as catalysts for a sharp up-move in stock prices. Hence, we, as investors, look for these constructs, while picking stocks.

Q) Nykaa made history while Patym failed to meet expectations of institutions. What are your views on the long-term potential and why such stark difference in the subscription status?

A) This IPO season has marked the entry of domestic technology-enabled consumer and retail finance businesses into the listed space. Tech-enabled businesses operate in spaces that have a long runway for growth.

It is the size, business models and valuation of respective tech-enabled businesses which drive a difference in investor appetite.  

We also note that:
• Consumer businesses are less cyclical than finance.
• Regulators have a large role to play in the lending Fintech space, compared to e-retailing.
• In India, we have possibly the best online payments system in the world in the form of UPI, which is free and easily accessible. Hence, payments fintech players might find it challenging to grow.

Q) What are your views on the IPO market for the rest of FY21? The new-age businesses are difficult to interpret and many of these themes will make their debut in the next 3-4 months. What are the key parameters to look at?

A) The IPO pipeline remains very strong for the rest of FY22, with Billions of dollars of new issuances lined up. Amongst the DRHPs filed with SEBI till now, there are more than half a dozen new-age tech companies.

The new tech-enabled businesses have distinct business models, which are new to the public markets in India. The common thread is a pursuit of rapid top-line growth by “investing” in acquiring customers.

The attractiveness of these businesses are a function of the lifetime value of these acquired customers and the operating leverage in profitability driven by scale and the winner-take-all phenomenon, as well as the competence of the management.

Not all new-age businesses are similar in terms of growth opportunities and risks, and one should be careful in picking the more probable winners here.

Q) What cues are you getting from September quarter results? Do you think that earnings could take a hit in the coming quarters?

A) Quarterly results are slightly better than expectations with the Nifty companies so far posting higher than expected performance.

We don’t expect any material cut in earnings in the coming quarters, as yet. We shall be watchful of the impact of inflation on demand going forward.

Q) Which themes are making a comeback – the reopening trade?

A) The re-opening theme is clearly playing out well with Retail, Hotels, Aviation, QSR and Jewelry stocks outperforming.

Q) What is your call on the auto space?

A) In Autos, demand is impacted by massive price inflation and higher fuel cost. Semiconductor supply shortage and a spike in prices of key RMs have been a concern.

We see these problems to be cyclical, and expect the outlook to improve gradually. EV-led disruption is knocking on the doors, which has to be navigated. Hence, investors have to be selective in this space.

Q) Stock exchanges to start T+1 settlement from Feb 25, 2022. What are your views – is it a step in the right direction? FIIs had some reservations with respect to that. What is the possible impact on D-Street?

A) We believe it will be a step in the right direction, continuing on a series of steps taken by the regulator in the last five years to make the financial markets more inclusive, transparent, and easy to use for the retail investor.

We see several benefits of this shortening of the settlement cycle; including a boost to liquidity and lower market risk as a reduced settlement cycle will mean faster access to funds and securities.

Q) Inflows in equity MFs were the lowest – but SIPs continue to rise and shine. What does the trend suggest?

A) In India, ULIPs and SIPs are among the most popular long-term retail financial savings instruments. Hence, we see a certain stability in the flows into these products. They are akin to the 401(k) plans of the US.

As more of the workforce have disposable savings and their employers are moving away from Defined Benefits pension plans, the need for such avenues for long-term savings are increasing.

We are also witnessing enhanced traction of retail flows into our equity-oriented ULIPs. The plethora of IPOs are attracting a lot of the retail flows too.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)