New-Age Businesses Shouldn't Be Dismissed As A Bubble, Says Nippon India Mutual Fund's Manish Gunwani

“In India, inflation is driven largely by food and fuel. Fuel is driven by global crude, and with so much technological intervention there in the form of electric vehicles, OPEC itself would also not want to go above $80 a barrel,” the chief investment officer, equity investments at Nippon India Mutual Fund, said in an interview.

“So two-three year CAGR in oil wouldn’t be very high,” Gunwani said. “Food as well, production remains healthy, so there's no supply-demand issue but policy reforms are required."

Gunwani, however, is worried about uncertainty around Covid and fall in U.S. bond yields by 30-40 basis points. There the fears seem to be lack of growth, more than inflation, he said.

For India, however, everything is falling in place.

Here’s how Gunwani sees key themes:

Room For New-Age Stocks

When Indian markets are witnessing a rush of initial public offering, Gunwani wants investors to consider new-age stocks. “I'm also not of the view that the whole new-age business model has to be written off like a bubble,” he said. “Their businesses are genuine. We use their services on a daily basis.”

For such stocks and companies, a better way of their performance is to see their market capitalisation, future opportunities and unit economics, rather than going by their price-to-earnings ratios, he said.

Specialty Chemicals

Gunwani said the sector will play out just like in the late 90s—around five to 10 companies will do spectacularly well, while many won’t make a mark. "This is another sector that one shouldn’t buy on price-to-earnings or EV/ebitda ratios,” he said. “In the end, it’s a manufacturing sector and unlike IT, it doesn’t generate the kind of free cash flow, so there are some negatives because of which valuation doesn’t exceed a certain level."

Information Technology

A sector like IT that has performed well over the last two decades still has room from growth, according to Gunwani. "It’s on fire. It is one of the few sectors in a Covid-19 impacted economy that has a supply issue, which is a good problem to have."

Indian managements can manage supply well, he said "In the last 20 years, industry growth rate has gone down, from 40% to 20% but it hasn't reached the 3-5% mark. It's still delivering 8-10%, which makes it stands out.”

Watch BloombergQuint's Niraj Shah's full interview with Nippon India MF's Manish Gunwani.