Pankaj Murarka, Founder Renaissance Investment Managers

13 Sept 2022 , 03:20 PM

What is your outlook on the market?

On a relative basis, India is in a sweet spot where there is a fine balance between growth and inflation, a rarity in today’s global environment. Several variables like recovery in the capex cycle, and China+1 amongst others have the potential to catapult India’s GDP growth by additional 1-2% pa. for a sustained period. This is quite possible as several other countries like Japan, South Korea and China have also witnessed this for 1-2 decades. Currently all the stars seem aligned for a promising outlook for India over the next decade.

What approach should retail investors adopt in the current scenario?

In the current environment, equity seems to be the most promising asset class for a medium to long term view. The outlook for the Indian economy is promising which is expected to keep equities buoyant. Importantly, corporate governance practices are also improving with every passing year. Hence retail investors should remain invested in the markets. There is an opportunity for massive wealth creation by investing in quality stocks and subsequently holding it patiently over the long term. Wherever required investors should seek reliable advice from experts and not fall prey to market chatters.

What are the key highlights of corporate earnings in recent times? Do you expect earnings upgrades going forward?

Unlike the past, corporate earnings went through an upgrade in the calendar year 2021. However there have been some downgrades since the breakout of the war between Russia and Ukraine, which led to an increase in commodity prices and an imbalance in the global supply chain. In the near to medium term, we are unlikely to see any major upgrades/ downgrades in earnings at the aggregate level. If the global scenario were to stabilize, there is a potential for some upgrade in earnings for FY24/25.

Coming to your portfolio, do you look out for value stocks or growth stocks and why?

Our investment strategy is driven towards growth stocks. We believe India is a growing country and there is a strong opportunity for investors to benefit from the power of compounding.

What are the key themes you are betting on over the long term?

We believe India is at the cusp of a huge increase in consumer discretionary spends, which should benefit several businesses in the discretionary space including the likes of Auto sector. In addition, there is a recovery in the private sector capex cycle which should benefit several sectors like Banks, Capital goods and Chemicals. There are selective opportunities in the internet economy as well.

CRAMS is a unique yet nascent opportunity for Indian pharma companies. What could be the potential risks to their growth story?

In the backdrop of a global competitive scenario and tight cost structure, we believe outsourcing of research and manufacturing in pharma is likely to be a structural theme in the long term. In the near to medium term, there could be growth headwinds in terms of cutback of spends or delay in launch of a molecule. But we don’t believe this can disrupt the long term opportunity.

Within the IT sector, there are large caps, there are internet economy-focused companies and then there are midcaps who have created strong economic moats in select niche segments. How are you approaching each of these segments?

We have been underweight on all these sectors for the last few quarters because of various reasons like growth concerns and expensive valuations in the IT sector. On the other hand, digital companies faced headwinds in terms of an unclear road towards profitability. Given the correction over the last 2-3 quarters, we have now started seeing value emerging in several of these pockets. However, for now, we are gradual and extremely selective in investing in this space. We are closely watching a few companies in this space, as they have the potential to create massive wealth creation in the long term.

Within the manufacturing sector, which sub-sectors do you like?

Capital goods are a clear beneficiary. In addition to this, one should look for sectors that have tailwinds from China+1 & PLI scheme. This includes the likes of Consumer electronics, Auto, and Chemicals amongst others

What are the key challenges investors should watch out for?

I think geopolitics is one big risk for investors across the globe, which can’t be ignored. It has the potential to further exacerbate the inflation/ growth crisis faced by countries across the world.