We have divided our concentrated portfolio of about 24-25 stocks across three buckets -- the structural growth stories (SG) or long-term compounding stories; the momentum opportunities (MO) with a 2-3-year view; and special opportunity (SO) with a one year view , says Jaspreet Singh Arora, CIO, Equentis Wealth Advisor
We have basically divided our concentrated portfolio of about 24-25 stocks across three buckets -- the SG, MO and SO. SG is the structural growth stories that come under the first bucket. These are the long-term compounding stories. The MO is the momentum opportunities which we take with a two to three year view and special opportunity (SO) is where we take investments a one year view.
There are three themes that we are largely concentrating our portfolios around; the first is the formalisation of the economy or the unorganised to organised. The top 4-5 companies are taking the lion’s share in each sector. Second is the higher use of technology in each and every thing that we do including digitalisation. We would not have thought of opening a D-mat account in 2010 sitting at home. Look at what happened last year! And last is the financialisation of savings.
There are more but these are the larger set of themes that we are focusing on in our portfolios.
I see some top class steel companies in your portfolio. We understand that in the last three-four weeks, the prices are stable to negative. What are your thoughts? Is it a temporary transitory correction which is taking place in your view and the steel story remains intact?
Absolutely. The steel cycle and metal cycle typically take about three to five years when the bull market trajectory starts. The last big one was in 2003 to 2008, which was a good five-year cycle. But this time, even though it started in August ‘20, till August ‘21 it has just been a year. There have been so much production curbs in China, which is the single largest producer of steel and metals, that prices are very high. They have put curbs on exports. That is leading to supply tightness and that puts demand growth at 6% or more globally.
Europe is growing at 10% or more. It looks like steel prices are there to stay or maybe go marginally higher. Remember, domestic steel prices are still at a 10-15-20% discount to the international prices depending on category.
There is room for further expansion in domestic prices and the current EBITDA estimates of steel including us is still not taking into account the current steel prices. It is estimated there would be a certain softness. While if the reverse were to be true, then the current prices were to sustain for the balance part of the year for most of these steel companies including the largest steel company in our portfolio, Tata Steel, if EBITDA goes down to as much as one time versus two times which it was two quarters back and even lower thereafter.
https://economictimes.indiatimes.com/markets/expert-view/jaspreet-singh-aroras-4-top-bets-in-nWe are positive in this space and what is happening in the entire ecosystem. Whereas earlier it was Gen X and Gen Y which are the people born after 1980, now it is Gen Z, which is people born after 1996, who are a large part of the ecosystem which is driving this. People used to think that it is not easy to start a business in a year’s time. But during Covid, many businesses started in CY2020 and many actually have thrived in that period.
We are positive on this space and the holding that we have so far are two stocks -- one is Zomato and one is IRCTC which we have in our clients’ portfolios. We are very positive on these two stocks, specifically Zomato, because the opportunity is huge even in the food delivery business. What’s more, what the company can do in terms of cross selling given the amount of huge data that they have today and what they may end up with in the next couple of years.
Zomato has a strong network of customers, restaurant partner tie-ups, inorganic growth opportunities because of the huge fundraise and the cash bank balance that they have after the IPO. Remember it is a duopoly. If you were to decide when to order, you literally do not have a third option. It is a huge market. Zomato is right up there in terms of growing 30-40% or more compounded year after year for the next many, many years. So I guess it is a huge opportunity.
The same is the case with a company like IRCTC as well. We consider it as a platform business because it is just not a railway ticketing business. They are trying to venture into other parallel businesses like hotel, tourism and bus booking and even airlines. Again a huge amount of other parallel opportunities are available given the data that they have over many decades.
You understand cement very well. You have JK Cement in your portfolio. Across mid, small and largecaps, which names offer the best earnings growth for the next three-four years structurally and valuation and risk reward wise are most attractive in your view?