An elevator travels next to electronic boards displaying stock figures at the National Stock Exchange of India Ltd. (NSE) building in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Look At Cash Flow, Not Just Earnings Growth, Envision Capital’s Nilesh Shah Says

In a high-growth economy like India, identifying stocks with growth potential early leads to returns. That’s the central message from Nilesh Shah of Envision Capital on BloombergQuint’s special show Alpha Moguls.

Being conscious of the price that one pays is important, he said. But if it’s a high-growth space, “future years of growth can take care of an expensive purchase”.

“Buying a leader in a space that is going to witness high growth is a sure-shot way of picking a winner. But most important is to look at cash flows and value companies as opposed to only looking at price-to-earnings multiples.”

Earnings are understood as accounting profits, and these can be moved around, based on the management’s discretion.
Nilesh Shah, MD & CEO - ‎Envision Capital

Shah said free cash flows and price-to-cash flow ratio would serve investors better. “Over a period of time, markets would disproportionately reward growing cash flows.”

Pockets like information technology could make a meaningful comeback, he said. Also, it may not be a bad idea to look at good companies in sectors like real estate. Shah is selectively looking at mid-sized banks and travel and tourism sector for the next set of winners.