Alpha Moguls: Why Samit Vartak Thinks It’s A Good Time To Buy Quality Mid Caps
The fear of losing money has a greater impact on investor minds than any gain.
Most investment decisions are about avoiding the pain of losses, according to Samit Vartak of SageOne Investment Advisors LLP. So investors, he said, try to hide in large caps that have done well rather than buying companies in the broader market where there is earnings visibility.
Vartak, who believes in cycles, said the market-wide return on equity will revert to nominal-GDP growth levels sooner rather than later. The Indian return on equity, he said, has remained suppressed for too long, and there’s a high probability of a reversion from the current 10 percent to 13-15 percent, which is the long-term trend for India’s nominal GDP growth. That gives him confidence to invest in the broader market now, for a reversion to those levels of return on equity would give a valuation floor to the market.
It’s a good time to accumulate quality mid caps that have earnings visibility because valuations for most of them have come off quite sharply, Vartak said. He, however, said for the “buy and hold” category, investors need to look at companies that do well in bad times as those are re-rated the most.
Vartak cautioned that some of the favourite consumption stocks may report stagnant growth or contraction relative to the past years and may result in valuation de-rating. He cited several examples of companies that were investors’ favourite in the recent past but have disappointed because of growth coming off. Vartak is bullish on specialty chemicals segment but said it doesn’t fit into the buy and hold for eternity model because rapid changes in factors may impact the business hard.