“We try to stay ahead of the curve, by spotting promising companies early, before they come into the limelight,” says Keshav Garg, director, Counter Cyclical PMS.
“If we are able to buy a stock at trough multiples on trough earnings, then we have a potential multibagger,” he said.
Edited excerpts from an interview with ETMarkets:
Benchmark indices have rallied close to 16% in 5 months. How comfortable are you with the current valuations?
Though valuations are nowhere as cheap as they were till a few months back, there are still pockets of undervaluation. However, we are cautious on markets.
Your smallcap fund has given multibagger returns in 3 years, according to PMS Bazaar data. What’s driven this performance and what’s your stock-selection approach?
We run a diversified portfolio of smallcap blue chip companies which are going through a downcycle in their business (QiD – quality in downturn) and are consequently available at a huge discount to their intrinsic value.
Since we spread our net wide and track hundreds of companies, we were able to exit stocks that became expensive and replace them with cheaper stocks, on an ongoing basis.
Which stocks/sectors within the midcap and smallcap are you extremely bullish on?
Though we are bottom-up investors, we try to find value in any sector which is going through a downcycle like chemicals, API, pigments, petrochem, poultry, ceramics, textiles, tea, IT, cement, building materials, exporters, education, consumer goods, jute, metals, hospitals, conglomerates, tobacco, agro processors, seeds, etc.
The more beaten down a sector, the more ripe it is for us to find great value.
Are you seeing any new emerging themes in the broader market?
Value is the only theme that we follow. You can’t buy what’s popular and then hope to outperform the market.
We try to stay away from “emerging themes” like EMS, defense, railways, etc. and focus on stocks in sectors which are unpopular, ignored or priced for bankruptcy.
The market seems to be coming on terms with new-age technology stocks. Would you be buyers in any?
We are old economy, brick & mortar investors. We stay away from technology stocks as they are beyond our circle of competence.
What’s your key takeaways from the Q1 earnings?
Earnings were a mixed bag. Capital goods and infrastructure sectors are doing well, while exporters, consumer facing and chemicals sectors remain under pressure.
What’s your PMS’ mantra for generating alpha returns?
We follow a Counter Cyclical approach wherein we sell the stocks which are popular at the moment and buy out-of-favour stocks.
We like high quality smallcap cos which have dominant market share in niche industries and those which do regular share buybacks.
We constantly strive to increase the quality and decrease the valuation of our portfolio, by switching our existing holdings with something offering, either similar quality at lower valuation or higher quality at similar valuation.
We try to stay ahead of the curve, by spotting promising companies early, before they come into the limelight.
If we are able to buy a stock at trough multiples on trough earnings, then we have a potential multibagger.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)