profit growth: even a bear market is a narrow bull market; I will aim for profit growth over the next 2-3 years: Anshul Saigal

It seems like yesterday was the first wave of profits after a fantastic September?
Anshul Saigal: Yes, this is the first real correction we have seen in the markets after a really strong month. But that aside, if we look at the long-term picture and go back to the times of Covid, from Covid, to the end of Covid and the beginning of Covid lockdowns, we see that the markets have gone one way and up, whether there were small, medium or large caps, after the market crash in March 2020, they simply went one way and up.

We witnessed FIIs emerging with great fervor from April 2020 until November 2021. Then, in 2022, we witnessed a cooling in the markets, in particular the top-to-bottom small cap index fell by as much as 29% at one point, ending calendar year 22 with a decline of approximately 13-14%. This decline was a result of FIIs withdrawing money from the then markets.

In 2023, we witnessed the return of investors to the markets, especially HNIs, they returned to the market with great zeal and started buying from the markets. As a result, in 2023-2024, small and mid-cap indexes increased by as much as 70-80%, so the broad-based growth we saw in 2023 and 2024 was simply enormous. Today’s situation is a point where HNIs, i.e. high net worth individuals, are not in the investment phase, but in the phase where they want to book the huge profits that they have made during this period. Over the last odd year and a half, many stocks have rallied 5-10 times.

On the other hand, FIIs were not available in the market for most of this year and it was only in September that there were some suggestions to buy India. This is an interesting situation where, due to this type of flow dichotomy, next year could be a difficult year or a year of consolidation for small and mid-caps, while large caps continue to hold at their current level, are relatively better positioned attractively compared to small and medium-sized companies. So we may even see an increase in large-cap stocks. However, since the inflow of companies to small and medium-sized companies will be moderate, we can expect consolidation in this market area next year.

Whenever this loosening in the market cools down and we start to get back to the high of 26,000 or more, although you can’t really time the market perfectly, but is there value on the table right now? If corrections were to continue for another one and a half percent from here, three to five odd percent of the index, what would you be tempted to buy?
Anshul Saigal: One thing I have learned over the last 20 years of being in the market is that to participate in the market you have to look much more at earnings growth than at valuations to prevent failure. Both things will be taken care of if you have earnings growth translating into the stocks you buy, so I will be targeting earnings growth if I’m looking for stocks over the next two to three years.

Even a bear market is a narrow bull market. What I mean by this is that if, say, 950 stocks go down, there will always be 50 stocks that go up. History shows that these are mainly high-quality companies where earnings growth bucks the trend and truly grows despite the loss of momentum in the markets. Given this scenario, which assumes a market decline of 3-5%, I would look for companies where I am relatively confident of growth. Of course, there is no 100% certainty, but I can estimate with high probability that earnings will grow well over the next one or two years.

I think there are many areas in the market where this can happen. Production, capital goods. Overall, media as a space will also look quite attractive in the future. Over the next few years, the rural economy will slowly recover. Even the FMCG space, which has seen consolidation for most of the last two-three years, looks interesting. Banking at this point is quite reasonable in terms of the growth we anticipate over the next two years. These are some of the areas where I will be looking for opportunities and it will be a much more equities-focused approach rather than a top-down sector approach.