The newly listed companies from to to to ,have come off quite significantly in the recent decline in the markets. Are you relooking at any of these names?
Yes, we have upgraded Zomato to a buy quite recently when it had its lows for the simple reason that we do believe they are real business models. We were cautious about them at the prices they were trading at at one point in time. The reality is that as these valuations have come down and the business prospects have remained more or less the same. What we have seen with Zomato is that the dynamics of the business have also tended to change a bit in that there has been a surge or a focus towards profitability.
That is why we will start seeing a certain amount of value in a lot of these stocks. Wherever there is confidence that the business model is robust and wherever we get the comfort that these managements are sticking to what they have been talking about and what they have been doing, then we will add. So amongst these stocks we actually have buys both on Zomato which we recently upgraded and Nykaa, which again is a very consistent model and we do not see the broader economics changing.
I think the valuation framework does change a little bit simply because rates have gone up, the cost of capital is up but otherwise the trajectory of growth and profitability remains. The more stability you see there, the more confidence there will be in the market for these companies.
Where within the small or midcap space, if at all, are you finding any value emerge or would you say keep off from that and stick to the safer larger caps?
At a strategy level, generally we would prefer low beta. We would prefer largecaps and we generally are running an underweight as far as the small and midcaps are concerned but a lot of these stories, rather than being thematic or sectoral, are stock up and we have a bunch of stocks that we tend to like.
« Back to recommendation stories
I do not want to go into the names but a lot of them are basically individual stories rather than necessarily sector thematic and that is the very nature of small caps and midcaps. One of the challenges that we face is really the potential economic damage of inflation and some of the policy responses to that inflation.
Typically it is the smaller businesses that tend to be a little bit more vulnerable to these broad macro pullbacks and that is where we have a certain amount of extra caution as far as the smaller businesses are concerned because it is not just about valuation and growth getting impacted but business risks also tend to rise a little bit more for them.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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