Tell us a bit of about your conference and which are the companies you are planning to showcase?
We have just released our mid-cap strategy report and we think that given the extreme amount of concerns right now in the market around equity environment, high inflation rate and surging interest rate, I think mid-cap stocks have taken the beating.
The valuation discount between mid-cap and large-caps have widened and probably it might widen some more as the market environment continues to settle down in next three to six months. But we think that at this point in time you will find good quality mid-cap stocks where there is a good value, comfort around future prospects.
So this is a time to start evaluating good quality, high quality ideas and build your position in next three to six months because when the market environment turns back, the mid-cap stocks typically tend to outperform large caps significantly and it becomes very difficult to build sizable positions in these stocks.
So our whole effort here is to try and showcase the companies which we think are holding good promising future in next couple of years and can deliver superior returns on the value front. Main focus is on those stocks which are offering significant amount of value at this point in time have a good future prospectus and are available at a reasonable valuation.
Will large-cap stocks are available at lower valuations and does it make compelling case to invest in mid-caps?
As I said that large-cap stocks are available at lower valuation but their valuation discount or the gap between large-caps and mid-caps is still higher.
Currently, the mid-caps are trading almost at around 34-35% discount which I would not say at its peak but I think it is one of the highest. Last we saw in September 2008 which was around the crisis times.
So it was around 40-45% which I would say probably fair. What it means is -- as the market environment settles down this discount becomes large. It has expanded in last six to nine months and it is a time to start evaluating good quality ideas which can offer you multi-baggers from here on.
You are showcasing a range of mid-caps names but is there a theme. Is there a particular trend which you are backing?
There are couple of themes which we are trying to see:
a) If the interest rates peaks out or the investment cycle bottoms, which stocks will bounce back. If the cyclicals bounce back then which are the high quality stocks that could be looked at.
b) Second theme which we are looking at is in the consumption basket, where I think the Indian consumption story has been very strong and remain solid.
You will see some of the smaller and mid-cap ideas will become large over a period of time, so we are focusing on those stocks. I think if the market environment changes and turns around and which are the cyclicals which will come back.
Some of the names which you are showcasing in this conference, they are quite illiquid and let me name some names here names like Pidilite, PI Industries , Tilaknagar Industries these are very illiquid names how do you justify by there?
Mid-cap and small-cap segment are very illiquid. If you are an institutional shareholder you cannot buy anything from the market you have to figure out a way of building your positions and there are opportunities through the block bias and you can build out your positions but mid-cap by and large will be illiquid space.
What we are seeing is that you obviously cannot have a significant large amount of proportion at this point in time in your portfolio from the mid-cap perspective given the illiquidity risk.
But certainly it is worthwhile to start building some amount of beta or some amount of risk through the mid-caps even if the times are bad, it is easier to build positions in mid-caps because I think that is a time you will find stocks available.
In good times, typically, you will see mid-caps and small-caps are hitting circuits without any volumes and it becomes very difficult to build position without impact and that is the reason we believe that this is a time to start looking at building positions in the stocks.
Are you getting a sense that closer to 5350-5375 on the Nifty, this market is getting a lot of fundamental support?
Yes, I do believe that at these levels market offers good amount of value and you will see flows coming through. I also believe that lot of negatives have already priced in, so I would tend to think that if market falls for any reason due to any negative news from local or international markets you will see flows coming through in the market.
No doubt about the fact that there are concerns prevailing around interest rates and inflation but I guess that is more or less at present the price. I think we are getting into probably closer to the bottom of the investment cycle. We will start seeing the investment activity picking up in next three to six months and that is the call probably market is also making.
You are showcasing about 20 midcap names today, let us nail it down to there top ideas?
Some of the companies such as VA Tech Wabag which is a very large company in a water space and which is again a very growing large space from a future perspective so I think that is a company we like a lot and we think now has good future.
Ajanta pharma is again a midcap pharma company and specifically and domestically formulation space which is very well positioned to grow in the industry and was trading at around five-six time times multiples offers significant multibagger opportunity. In this fertilizer space we like Coromandel Fertilizer which again is a 30% to 35% annual growth story available at a reasonable valuation good balance sheet, good management.
So these are three or four ideas we think though we have about top 10 idea list in our report but three-four ideas which I just mentioned I think we are very comfortable and convinced about. \
Source : ET