In 2021, India entered into a structural upcycle. It was a bumper year as investors reaped great returns on the low-hanging fruits. Most of the enthusiastic ride came from the IPO route because, on the other end, FIIs (foreign institutional investors) were busy selling their stake due to Omicron’s rising cases. If overall economic growth is robust and corporate earnings are healthy, FIIs are expected to return. Since this year was a bit of a magical and mysterious ride, all eyes are now on 2022.
Let’s quickly read on what could lie ahead in the new year 2022:
Bull-Run Or Bear-Run?: The Indian market is in the sort of a structural bull run. There is a lot of noise, like rising Omicron cases and Fed Reserve’s tapering etc. Despite this, the market is expected to do well. Going forward, it will be a very stock specific and sector specific opportunity. In 2022, one will have to dive deeper into the companies that you are investing in.
Valuation Test: We are sitting on deflated earnings, so market capital-to-GDP or price-to-earnings ratios are not fully reflective. From FY23 and FY24 perspectives, Indian companies will create a lot of value, but a lot of it cannot be compared. However, a large earnings growth will certainly take place in the next 3-5 years.
Portfolio Strategy: From a buying perspective, one can look into private banks, IT and hospital stocks. From the selling view, IPOs seem to be overly expensive. They are good companies but charge way more. It’s better to stay away from IPOs. Furthermore, you can continue to hold banking, IT and commodity stocks.
Screening Process: We look at companies broadly from 2 angles, medium to long term perspective, which is 80% of the portfolio. The other is 20% which consists of tactical bets, basically less than six months' perspective. In the long-term, we look at companies with good earnings, great capital allocation, healthy RoE, corporate governance and brilliant growth runway.
Learnings From Raamdeo Agrawal: Look at companies from a market capital-to-earnings point of view. Multibaggers are those whose total sum of the earnings will be greater than the current market cap of the company in the next 4-5 years. A company needs to deliver consistent growth for a long period. That longevity helps in predicting multibaggers.
The market has been good this year, except it was a bit rocky towards the year-end. What next year holds for us is unknown, so do not be fooled by media experts. Continue to play your strategy and stick to your ground. Do your research and invest wisely. Let’s hope for a better-than-expected 2022!
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