There Are More Opportunities Than Risk Beyond 2020, Says Envision Capital’s Nilesh Shah

“I’d probably say that yes, the risk reward is still neutral but beyond 2020 I see the risk reward becoming hugely favourable and positive for medium- to long-term investors,” he told BloombergQuint in an interview. The managing director and chief executive officer of Envision Capital said it’s prudent to ignore the current financial year and focus on how recovery unfolds thereafter. “If you pay too much attention (to FY21), you run the risk of going horribly wrong.”

Global-facing businesses, according to Shah, continue to be in a “sweet spot” as the provide products and services that fall under the non-discretionary category for the rest of the world. Operation of most such businesses have come back to normal, he said. When asked to specify, he named information technology, pharmaceuticals and specialty chemicals.

Here’s what he had to say about some of the sectors:

IT

• Within the traditional and non traditional baskets of Indian IT companies, specialised tech companies that offer product engineering services and offshore product development where you really partner with the large R&D corporates is “probably the largest sweet spot”.
• There’s life beyond the conventional IT services and conventional rupee depreciation theme.
• While size matters in a services business, it is also about capabilities and competency.
• Somewhere in between being a large sized and mid sized company is the sweet spot of unlearning and learning the technology you need to evolve.
• Opportunity lies in the size of the market. Companies should focus on increasing market share, growth and revenue. Too much focus on expanding margins, some other business will “eat your lunch”.

Pharma

• Indian pharma’s ability to launch generics is unmatched. The fact they’re contributing to making healthcare more affordable is great proposition.
• Indian pharma is sitting on multi-billion-dollar opportunity.
• Indian pharma has a long run to go.
• Yes, valuations are not as cheap as they were say a few months back or maybe a year back, but growth will still keep surprising investors on a positive side.
• Should try to have a multi-year time horizon on the sector.

Financial Services

• India’s financial sector looks very paradoxical.
• There are sectors like automobiles, which won’t see a significant recovery this year, but prices have run up. Banks, on the other hand, will actually have a good year because of the moratorium but stock prices have not had as significant a catch up.
• Investors and markets are misreading the situation which is why I call it paradoxical.
• Banks will do really well in the near to medium term despite the alarm bells ringing from different pockets.
• Yes some of those concerns will play out, but risk management has become relatively robust.
• Need to focus on these kind of banks that will grow and compound their intrinsic even in tough times.
• Look at banks that have adequate capital and where the management is focused on keeping the asset quality in check.
• Really excited about non-bank lenders in the long term.
• Next big opportunity is for non-lending financiers is to be online and go digital and reach customers beyond the top 10 cities.
• Digitalisation will be a huge opportunity for non-credit players.

Watch the full conversation here: