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Valuations And Volatility Do Not Really Matter That Much, Says Sumit Bilgaiyan, Equity99

BW Businessworld's Clifford Alvares spoke to Sumit Bilgaiyan, founder, Equity99, which focuses on wealth creation for a family office


Half-way into the year, stock markets have hardly delivered meaningful returns to investors. Most stocks have taken a beating, while volatility has increased. So what is the outlook for the rest of the year? In this scenario, BW Businessworld's Clifford Alvares spoke to Sumit Bilgaiyan, founder, Equity99, which focuses on wealth creation for a family office. Here his views on how to invest in the market for the rest of the year. 

There is too much of volatility in the stock markets lately, and it is shaking investors. What’s your view?
The on-going scenario is going to be the year to build a portfolio. There is no good or bad time to invest as long as the stock has the potential to gain. Valuations and volatility do not really matter that much. Stock markets have been volatile all throughout history. Whenever there is a string of negative news or a turn of events, volatility tends to spike up. So it’s nothing new. What you should do is focus on the quality of noise that is driving the markets. If it’s not too negative, and if it’s not going to have a long-term impact, then volatility can be a blessing in disguise for investors. You will get an opportunity to get quality stocks at better prices.

Isn’t the stock market too high, and won’t investors tend to get trapped at higher levels?
Yes, I agree, many stocks are at their historical highs, but chances are that we may still see some upside over the long term. The fundamental factors that are driving India which is consumption, infrastructure investments, operational efficiency, better business environment for regulation-compliant companies, are all there and is changing the business landscape. Investors who are buying now will have to focus on good quality companies, and diversifying the portfolios adequately. It’s not the time to take a punt, but do some serious research and pick stocks. If you do your homework well enough, you won’t get trapped at higher levels, but you will end up with some sizeable gains in the coming years.

But a lot of mid- and small-cap stocks investors have got beaten badly in the markets. How do you see that segment playing out?
Small- and mid-cap stocks are a different breed in the market as most of these counters have low liquidity. So when they move up, they tend to move up too fast, and the same goes for when they correct. The last few years have seen a liquidity-driven rally in mid- and small-caps taking these stocks to higher levels. We are now seeing a churn in these counters particularly as investors begin to question whether companies will be able to deliver high growth levels at these high valuations. But even here too, if you continue to focus on companies that can deliver outsized profit growths, sooner or later such stocks will bounce back.

Where do you see earnings in the next few quarters?
Earnings are returning somewhat in large caps. Last quarter we saw low-double-digit earnings growth, and my sense is that earnings will gradually increase. Earnings may look concentrated in some of the consumption sectors, but sectors like infrastructure, public sector banks, will begin to bounce back. We may have to worry if oil climbs up from here as it will impact oil companies’ profitability, but right now we are comfortably placed in terms of earnings for the next few quarters. So large-caps will remain stable. We have to watch for mid-cap earnings because only a few companies will tend to do better than average here.

What are the levels you are anticipating for the year end?
While the large-caps will be higher than where we are, in mid- and small-caps, we would see a lot of churns. Investors are clearly sifting between the good companies and the marginal players by assigning a higher price-earnings multiple to these companies. I anticipate this trend to continue for the rest of the year. Companies that can demonstrate earnings growth, and walk the talk so to speak, will be favoured in this market.

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