With Nifty generating 12% CAGR over the last five and ten years, it is possible to generate 20% or more CAGR through the right portfolio construct or association," says Jaspreet Singh Arora, Chief Investment Officer, Research & Ranking.
In an interview with ETMarkets, Arora has over two decades of experience across institutional research and retail research, investment banking, and corporate finance, said: “Wealth creation in the equity market is a mix of variables which are in an individual’s control and certain variables which are not as much” Edited excerpts:
India has turned out to be the bright spot in the global arena. What is driving the outperformance? How do you see markets in the medium term?
India today is a preferred global investment destination with its unwavering commitment to economic reforms and improvement in the ease of doing business.
Investor-friendly government policies that allow for 100% foreign direct investment under the automatic route, PLI schemes across sectors, a young population, strong fundamentals, growing domestic-demand-led growth coupled with increasing emphasis on export share globally are driving outperformance.
The government’s excise duty cuts, export duty increases, export bans and normal monsoon expectations have adroitly arrested the rising inflationary trend.
The current inflation in India at @7% is lower than that in US and Europe, something that was unthinkable till a couple of months back.
The inherent strength of our economy is also reflected in our currency value, which has unlike other major currencies, not depreciated materially against the USD despite huge FII outflows every month since Oct ‘21.
India’s forex reserves of ~$550bn is quite healthy and sufficient to manage any forex volatility.
At an average FY23 GDP forecast of 7%, India will be the fastest growing among large economies in the world (the next highest is China at sub 4%), as well as much higher than the global GDP forecast of 3.5%.
How to spot potential wealth creators of the future? What filters do you use?
Our strategy at Research & Ranking remains aligned with adopting a long-term approach and the focus is on identifying fundamentally rock-solid companies with favourable business conditions to generate a healthy alpha.
We adopt a 10-core-rule strategy on both qualitative and quantitative measures to shortlist stocks.
The quantitative parameters include ROE, ROCE, the number of years positive free cash flow (FCF) delivered, sales & PAT CAGR, Beta level and more while some of the qualitative factors cover corporate governance, management quality, company's competitive market positioning etc.
Our portfolios are bucketed in three categories - Structural growth where we take a 3-5-year view on a stock, momentum where we take a 1-2 year view on a stock and Special Opportunity where the approach is up to one year.There is plenty of action in the consumer discretionary space. What is driving rally in this sector and are there any stocks which are looking attractive?
The festive season has brought significant cheer with celebrations after two years of disruptions thus fueling demand for discretionary categories like apparel, jewellery, footwear, retail, hotels etc. The expected strong earnings outlook has led to a run up in most stocks in the discretionary space.
The buoyancy is expected to continue in the near to mid-term. From a long-term portfolio construct, we prefer names in high-growth industries, increasing the size of the pie due to shifting from unorganized to organized, dominant franchise, right-to-win, able leadership, and superlative earnings growth potential.
India’s per capita doubling in the next few years from $2000 currently will continue to be a dominant theme in the foreseeable future and thus this rally has more legs in our view from a 2-3 year view.
Moody’s retains India’s rating and see the minimum impact of inflation. Some analysts call this as Golden decade for India. What are your views?
Despite slashing India’s growth forecast to 6.6%, Moody’s believes India will flourish despite the short-term headwinds and high inflation.
The economic progress, strong underlying fundamentals, increasing domestic demand with a thrust on exports are key positives.
India leapfrogged into Top-10 large economies by GDP in 2010, Top-6 in 2020 and very recently dethroned UK to be the fifth largest economy.
We at Research & Ranking estimate India to be the third largest economy overtaking Japan and Germany in the next decade which will attract mega investments both from foreign and domestic investors.
Thus, India is on the cusp of a Golden decade and investors who stay invested for a large part of that will be able to generate wealth.
What is your take on the small & midcap space? We are seeing some bit of outperformance – do you think the trend will continue and as the economy is seeing strength many midcaps have the potential to become large caps?
The short-term and long-term trends suggest midcaps as a category have an edge over both large and small caps. The last one-year returns delivered by Nifty, Nifty Midcap, and Nifty Smallcap have been 4%, 10%, and -6% respectively.
The last 5-year's CAGR delivered by these indices have been 12%, 12%, and 5% respectively. If we consider a 10-year period, the CAGR achieved by these indices have been 12%, 14%, and 12% respectively.
Indian markets have outperformed global markets during CY22 driven by relative bullishness on the Indian economy and its growth potential. The outperformance of midcaps in all time periods suggests it blends in the liquidity of large-cap and risk-reward of smallcap.
Another characteristic is most of the names in midcap are led by entrepreneurs or management teams that have high growth aspirations, ready to explore new avenues including export while maintaining the quality of the balance sheet and corporate governance standards.
However, exposure towards midcaps should be built gradually and spread over few months or quarters, keeping volatility in mind.
Number of Demat accounts cross 10cr mark – a milestone moment. What would you advise to someone who is less than 25 years of age and want to invest in stock markets? Can he dream of becoming a crorepati and what would be needed?
Wealth creation in the equity market is a mix of variables that are in an individual’s control and certain variables which are not as much.
The former is the age at which one starts investing, the regularity of investments, and the duration over which these investments are held.
The latter is the portfolio return one generates, volatility that comes over the period of investments and any uncertainties/emergencies that one may encounter in one’s life that might derail the regular investments.
With Nifty generating 12% CAGR over the last five and ten years, it is possible to generate 20% or more CAGR through right portfolio construct or association with advisors like Research & Ranking.
So, for someone under 25 years, the target of becoming a crorepati can be achieved in 10-15 years with regular monthly investments.
Example: Rs 10000 monthly investment at 18% CAGR would translate into Rs 1crore over a span of 15 years and a few months. The same on a 24% CAGR and 30% CAGR would be achieved in less than 13 years and 11 years respectively.