investment strategy | Market Outlook: Sunil Singhania’s 2022 Tip: Forget Fear or Greed; be positive and stay invested

“Markets are like cardiograms – as long as they go up and down we are all vigorous. So to some extent this correction was welcome. It leads to a bit of stability when it comes to price action. “For a long time as futures investors, this gave the opportunity to create a portfolio of choice rather than going in and chasing stocks. So we weren’t unduly worried and we are not unduly worried,” says Sunil Singhania, Founder, Abakkus Asset Manager LLP.

We were looking for a Santa Claus this year. You have become your investors’ Santa Claus!
Thank you very much for all the kind words. It has definitely been a very good 18 months since the start when the pandemic hit us. Those who have been positive about the Indian economy and Indian stock markets have fared very well.

But for the first time in December, this market put our nerves to the test which had not been done in this bull market so far. The market is down 10% from the recent high. We have seen a bad period of volatility. So is this the new normal? Are we ready for the same in 2022?
Volatility has always been the order of the day in the equity markets. Obviously, no one likes deep corrections because we are inherently all bullish when it comes to the stock markets. But as October approached, we were in a phase where making money was becoming too easy. IPOs were out of date. They used to open two to three times their IPO price. Many stocks in the wider market were hitting new highs on a daily basis and it was like there was no tomorrow.

So to that extent it was very obvious that there had to be some correction. Obviously, the correction lasted longer than it had in the past two years and Nifty’s 9-10% correction caused some of the broad market stocks to drop 20-30%. So to that extent, yes, investors were a little nervous, but it’s something we’ve seen a few times before and so I don’t think we need to be overly concerned.

I always say markets are like cardiograms – as long as they’re high and low we’re all healthy and warm and pretty well. So to some extent this fix was welcome. This leads to a bit of stability when it comes to price action. For long-term investors, this also gives the opportunity to build a portfolio of choice rather than going into it and chasing stocks. So we weren’t unduly worried and we are not unduly worried. I’m not saying we’re at the end of it. Maybe we will have more bouts of volatility. The flow of information on a global scale is very intense these days. I think equity investors should always be prepared for volatility, maybe volatility is slightly higher, but so be it.

We call 2021 a year of fascination and imagination. Fascinating things have happened in the digital world, whether it’s crypto or NFT. The sheer wealth that has been created in other asset classes, the kind of excitement we’ve seen is unprecedented. What does this mean for the overall picture for 2022?
I think the world has become more dynamic. There have been upheavals, new concepts and new ways of living. You forget the meta-world which is the virtual world. It looks like a sci-fi movie where you can virtually buy a house, virtually have friends, virtually buy paintings and so on and that is where the NFTs of the world come in. At the same time, it should be remembered that some of the big winners having the same boring old businesses like steel, textiles and others perform better than all of the high-flying themes.

So while we need to be aware of all of these themes, blindly investing in them, no matter how valued, will not be good for the financial health of investors. The reason in terms of what you pay is as important as the theme you are playing for.

In case we see a reversal or adjustment in the NFT or the crypto world, could this impact risk appetite and fairness as an asset class?
In the short term this has an impact, but over a period of time investors adjust. Investors who are interested in new products, which the traditional ones do not understand and do not want to understand, are very different. So crypto could turn out to be a great asset. I do not understand and therefore we stay away. NFT is another thing; the concept is superb but how to promote them? We do not know.

But luckily, crypto is mass retail, so the amount invested is very low so far. As for NFT, there are only a handful of investors, but when you look at them and read a lot of things written on them, I think the only reason investors invest is because they think the price tomorrow will be more than it is today. No fundamental justification is given for any of these new age trading instruments. But yes, in the short run, if people lose a lot of money in a single asset, maybe if investors are common to all asset classes, it could have an impact. In my opinion, this will not have too much of an impact on other asset classes.

One of the reasons you’ve been so successful is that you bet on IT, Mastek, Route Mobile, and your good old favorite HCL Tech. where is IT going now? In light of what we’ve heard from Accenture, how do you see the IT industry?
IT services is a sector where Indian companies have global competitiveness and expertise. The other thing that is happening in the IT world is that many businesses have yet to embrace the new age to digitize all of their operations. For example, everyone wants to move to the cloud, but there is a data point that says less than 25% of companies have adopted the cloud so far. Thus, 75% more companies must adopt the Cloud. And when they do, they’ll need companies to enable the movement and that’s where Indian IT service companies would come in.

The world of digitization is similar to the world of data analysis. When we talk to IT service companies, I find demand to be the least of their problems. The problem now is more the supply, the increase in the number of people. We are therefore in a phase where the next four or five years are shaping up to be extremely good for IT departments.

We also have a bit of mind where we look at profitable companies and the profit growth of the underlying assets. So IT departments and businesses that were exposed to the digital world were our way of investing almost into the new age. So we were lucky. We were a little early. Businesses have done well, but as we move forward we continue to be overwhelmingly positive about the IT services space. The recent small depreciation of the rupee is also a positive wind and these are companies that are maintaining a growth rate in their mid teens. They are free cash flow generating companies that pay high dividends and opt for buyouts. They tick all the boxes and we remain overweighted in this segment.

Are your top 10 headlines likely to change dramatically over the next 12 months?
As long as the business continues to operate as expected of them, there is no reason for us to go out of business. It’s always easy to say the stock has gone up 50%, 100% and let us sell it, but we don’t realize that something else we will be buying would have also seen a similar or maybe slightly higher move. lower. So as long as the business has been performing as expected or better, there is no reason for us to go out of the business.

At the same time, what’s good about the Indian economy and the markets is that we are very diverse. We are present in all sectors. We have so many listed companies. The country is growing thanks to entrepreneurs and many, many of them continue to appear. So, time and time again, opportunities present themselves and as investors we are open. We are not obsessed with particular sectors or themes. The only underlying theme we follow is that the company should have visible earnings growth and, to that extent, we are open to investing in companies from all industries.

In fact, we made as much money in a steel company as we did in an IT services company. So, at a price, every business can be a great business, and at a price, the best business may not be the best stock. It is a simple philosophy that we follow. So, it is possible that many of them will continue to be in the main holdings and it is also possible that new ones will be added.

The differentiator for an investor over the past 18 months has been that those who bought fear have hit a home run. What will the differentiating approach be for an investor for the next 12-18 months now?
Maybe part of it is right that if you bought at the height of the fear, you made a lot of money, but even though you were an investor before Covid, you made great returns. Our two funds were launched before Covid, so these returns are independent of whether you bought at the height of the fear or before.

The bottom line is that if you invest in a country that has visible growth rates in terms of GDP, corporate profits will grow faster than GDP, and returns on a compound basis will be phenomenal. The problem is, we end up comparing our returns from low to high and from peak to low and therefore we become fearful and greedy from time to time.

My take would be that an investor should have reasonable expectations and if they have a four to five year time horizon there is no reason to believe that Indian stocks cannot deliver teen-like returns. . If one is very smart and can time the market and if one is brave enough to put everything up to the peak, go ahead and do it. But I don’t think there are too many such investors and it’s best to keep it simple – be positive and stay invested.

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