Home > Finance > Bullish on 3 themes; expecting broad-based earnings growth: Rajesh Kothari

Bullish on 3 themes; expecting broad-based earnings growth: Rajesh Kothari


This time, the broader market and the entire recovery is significantly broad-based and that is true even for our portfolio, says Rajesh Kothari, CIO, Alfaccurate Advisors.

In Q3, your portfolio companies have posted a 16% growth on the top line, margins have expanded and profitability is very healthy. What kind of numbers have you worked on for your portfolio for FY21 and what kind of earnings growth do you expect for FY22 & FY23?
This time it is going to be a very broad-based earnings growth recovery. The entire market aggregate as well the third quarter was contributed by a number of sectors. This is unlike the last 2-5 years where growth was contributed by only one or two or three sectors.

So, normally speaking, there were 2-3 top private sector banks, 3-6 consumer companies and two companies from each sector. But this time, the broader market and the entire recovery is significantly broad-based and that is true even for our portfolio. We have seen recovery across our portfolio names. For the third quarter, Nifty reported a degrowth in revenue but our portfolio companies reported very strong 16% top line growth and 30% profit growth against Nifty earnings growth of about 18 to 20%.

Coming to next year, our portfolio companies are very well positioned. The secret sauce of our higher earnings growth versus the market is primarily because all our portfolio companies are market leaders. Leaders always benefit both in the downturn of the economy as well as the upturn of the economy. That is the reason our portfolio companies are rightly positioned to continue to outperform the earnings growth of Nifty or the BSE 500 index. It is going to be extremely strong for both FY22 and then FY23.

Which are the kind of plays you have in your portfolio where you expect earnings growth to be very robust? Or have you equally distributed weights in the entire portfolio?
The weight is not equally distributed. Depending upon the market cap, if it is largecap, it is between 3% to 5%, if it is small and midcap it is between 1.5-3%. But coming specifically to companies or rather sectors, the one sector which I believe is going to report extremely strong numbers is auto ancillaries and this sector is going to get benefit both global as well as local markets.

We believe that auto ancillary companies are going to do extremely well over FY22 and FY23 and we are holding a few prominent names in this sector. The same is true for the large sector which are NBFCs and private sector banks, primarily where we believe earnings growth is going to be also very robust, the credit quality is going to be under control and the requirement of provision will be lesser.

When you say you are positive on a three-five year basis, do you think the market will get more fuel going forward as and when earnings come or do you think the market may get into a narrow range because it has already moved ahead of the good news, which is earnings?
Still a lot of steam is left. Capital expenditure is yet to revive and as and when that revives will be the biggest lag. The biggest pillar for the next earnings growth story is going to be the capex driven story. A lot of thing is yet to be probably priced in.

If you look at the last 10 years, Nifty returns or BSE 500 returns or midcap returns or small cap returns are not 25% compounded. I do not think everything is priced in. We believe that as the interest rate remains low, the earnings growth story will continue to remain strong and there is going to be a positive surprise in store for next two years.

We are looking at a surge of DIY investors all across several brokerages. How are firms such as yours observing things on ground?
Incrementally, most ultra net worth individuals are feeling that the market will correct at some point of time. The market is never one way up, it has its own volatility. So, very recently we have launched a AAA liquidity PMS plan and it has a switch option –one can transfer from liquidity PMS plan to equity plan over the next three months, six months, nine months or 12 months. It means that at every market correction, investors have the option to transfer from liquidity plan to the equity plan and HNIs really like such kind of an option because of automatic transfer over the next six, 12 months and further they can prepone it if say the market corrects tomorrow by 20%. They have a debt option as well.

I always believe that time in the market is more important than timing the market and people went wrong in the last 12 months and historically as well trying to predict the market timing. Every individual preference is different. One is bound to have differences in terms of perception but for the time being, this is what we are observing from HNI investors.

Any interesting new space which you are researching or reading closely right now, just for academic purposes?
There are three themes on which we remain extremely positive — auto ancillaries, specialty chemicals and capital goods related stories which are companies that have delivered zero percent earnings CAGR in the last 10 years. I think the story for these companies is going to start from here on.

These are the three themes which we are positive on and while the numbers may take some time for the capital goods companies, one needs to have a close eye on the order inflows. You are going to see a good picture from the month of April onwards.

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