Smallcase manager and founder of Niveshaay Arvind Kothari is betting on smallcap stocks such as Shivalik Bi-metal, , and that could be major beneficiaries in the areas of green energy and manufacturing.
“The green energy portfolio marked our beginning to play on the decarbonisation and sustainability theme. Energy transition takes time to happen and is an evolving long-term theme,” Kothari told ETMarkets in an interview. Edited excerpts:
Too many factors are at play in India. There is an expected capex cycle revival, government’s focus on building infrastructure, import substitution play and most importantly, we’ve the favourable factors of production encouraging investments in our country and getting the opportunity to export competitively.
Equity investors search for growth areas and in no way, at this point of growth cusp, India can be ignored by investors.
It’s absolutely correct when we say that the market has recovered from the record lows and the same has been reflected in our portfolio returns.
Having said that, will the momentum sustain or not in near term is something we can’t really say.
India itself is a huge market and we do have a potential to become a growing consumer market. We’re moving towards an east Asian model where growth will be sustained by a virtuous cycle of savings, investments and exports.
India is on a solid growth path, and while there will be hiccups on this growth path, we believe India can perform very well in the next few years.
With some external factors not in our control, India has the potential to create wealth for investors and may turn out to be “the asset” in the next few years.
How much AUM do you manage, and how has your fund’s performance been so far in 2022?
We advise cumulatively Rs 160 crore through our four smallcases. Our mid-small cap focused portfolio has delivered YTD return of 2.9% against -15.4% return of S&P BSE smallcap index. The same has delivered a 48% CAGR since inception over the last 3 years, against 20% CAGR of smallcap index.
Our green energy smallcase has delivered 11% return YTD, and has seen a CAGR of 80% since its inception over the last two years.
What are your top holdings, and have you rejigged your portfolio recently? Any new entry or exits in your portfolio?
For a very long time, we’ve been recommending investment in the decarbonisation, sustainability, manufacturing and consumption theme.
The green energy portfolio marked our beginning to play on the decarbonisation and sustainability theme. Energy transition takes time to happen and is an evolving long-term theme. To play on this, Shivalik Bi-Metal is one of our top holdings catering to the emerging EV space. To seize the opportunities created due to the government’s focus on capex cycle revival and China+1, we have a capital goods basket of stocks in our portfolio to play on this theme. One of the holdings is Elecon Engineering.
The trickle-down effect of increase in investments in any economy is rise in consumption. Here, one of the stocks is Borosil. The management led by Shreevar Kheruka is quite aggressive and proactive about the overall growth of the company and are taking all necessary steps.
What would be your top bets for 2023?
Sustainability and ESG compliance is a big theme that we remain invested in. It is a global trend and on the agenda of a large number of corporates/brand owners.
One of our top bets for 2023 is . The company is a leader in pet bottle recycling in India with an 18% market share, We expect this company to perform well in the coming years.
How have you managed the market volatility and enhanced returns for your clients?
Volatility is inherent to the market, especially when you’re dealing with smallcap stocks.There are countless ways to handle market volatility. We make sure to understand the business model, the products, the end user industry.
Invest in what you know and understand, be disciplined and stick to your process while investing.This will make a huge difference in the long term.
Also, we try not to over-allocate to correlating sectors, and follow the basket approach wherever required, while keeping a high margin of safety.
Also, we kept ourselves concentrated on companies which continuously showcased propelling numbers, which helped us beat the market despite the volatility.
Equity funds have seen sustained flows in 2022 month after month. Do you see a similar trend in 2023 or could one see more money moving to debt funds?
Equity funds have been gaining a lot of traction from investors as a tool to generate long-term wealth. This is visible in the record inflows in the last few months.
On the other hand, a rising interest rate environment since May 2022 has led to subdued returns on debt funds.This can be seen through the outflows from debt funds over a considerable period.
However, if RBI gets inflation under control, the rate hikes might go away, which would in turn improve return from debt funds. So, 2023 may not create a significant tilt towards any specific funds, and we could see more of a balanced approach adopted by investors to manage their risk-reward.
SIP contributions have increased significantly and retail investors have somewhat shielded Indian markets from the global shocks. Do you see the trend continuing? Any ballpark figure you see by the end of FY23?
October saw a record SIP inflow of Rs 13,000 crore, which was a continuation of the rising trend seen in the past year. Even in the smallcase portfolio managed by Niveshaay, AUA grew at the faster rate than our subscribers, which highlights the increasing trend of equity flows from the retail investors.
The Indian markets are at an all time high and showing good resilience despite high volatility in the global markets.
Tell us about yourself. What inclined you towards equities and what was the turning point?
My inclination towards equity runs long back. My great grandfather Mr Indramal Kothari was the cotton king of India during the 60’s. In fact, he used to decide the price at which cotton would trade each morning for many years.
Despite this, the wealth couldn’t even sustain over two generations, whereas on the other side, corporate houses of Tatas and Birlas grew just bigger and better.
This fascinated me as to how even with low capital, equities can make you bigger than what you can even imagine about.
Right after becoming a chartered accountant, I started as an industry research analyst at . More than a decade ago, after working in the finance industry and understanding its nuances, it caught my observation and interest that the wealth management industry was a little complex for investors to understand which induced me to quit my job.
Later, I started with advising on wealth management and now building Niveshaay with all heart and passion for the past eight years.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)