In conversation with Ritwick Ghoshal, Managing Partner and CEO of Bay Capital
While the macro picture for India is looking benign, any global shock or dislocation will tend to have a near-term effect on Indian equities as well, expresses Ritwick Ghoshal, Managing Partner and CEO of Bay Capital
How has the growth in Alternative Investment Funds (AIF) and Portfolio Management Services (PMS) influenced the investment preferences of High-Net-Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs) in India?
The AIF and PMS industry has grown quite rapidly over the last 5-7 years. An increasing number of ultra-high-net-worth individuals, family offices, and institutions are investing in these strategies for differentiated exposures that can generate alpha and/or better risk-adjusted returns over some time. We believe that along with traditional funds, investors should add such differentiated investment offerings for better risk-adjusted returns.
What are the key risks facing equity markets at this point?
Equity markets have done quite well since late March especially the Mid-Cap segment where stock returns in some instances have been quite spectacular. While the macro picture for India is looking benign, any global shock or dislocation will tend to have a near-term effect on Indian equities as well.
One of the challenges in recent quarters has been for those businesses which serve the lower end of the consumption pyramid where demand contraction and downtrading have been very visible. A prolonged slowdown here can have a bearing on those businesses for some more quarters to come.
One of the other potential risks to be aware of is that of valuations running far ahead of fundamentals. One needs to be mindful of investing in sectors/businesses where a lot of optimism might be built into stock prices and any small negative surprise on earnings can have a disproportionately large impact on stock prices.
What are the three sectors that you think appear promising and offer potential for investment in the long term?
While we don’t invest based on a top-down sectoral approach, we remain excited by the range of opportunities in the consumer space, the financial services businesses and the digital-first/consumer internet businesses.
That said, it is important to be selective and discerning about which businesses to buy into and it's important to have a time horizon of 5 to 7 years.
What are the key trends observed in the broad equity market in India? Are there any specific sectors that are witnessing notable growth or investment opportunities?
The few interesting things are that India now decisively stands out as an economy that is the fastest growing and the macro picture is quite benign be it around the trade deficit, inflation, interest rates and other similar factors. Data around services and manufacturing PMI and GST collections too are quite positive and this augurs well. The banking system in India has been purged of many of the legacy problems and credit growth numbers are encouraging as well. Earnings growth has been quite good and companies are now benefitting from lower commodity prices.
We are agnostic across sectors and are bottom-up-oriented. Looking past the macro, at this micro level, where we are focused, high-quality businesses continue to do all the right things to grow and deliver sustainable earnings. There are definitely also pockets of opportunities where businesses are at interesting inflection points these are fundamentally being re-architectured and/or where the power of the operating metrics will lead to large earnings deltas. This in turn will place these in a position to deliver asymmetrical shareholder returns.
Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.