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BFSI Chronicle, 11 Edition September 2022
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companies that ran ahead of time and were quoting margin of safety has been limited. It is possible that
at obnoxiously high valuations before the correction. some of disruptive businesses can themselves get
So rightly deserved such a correction, with an disrupted and only a few will survive or make it
opportunity to look at them at more reasonable big. This along with higher valuations will continue
valuations now. to lead to capital losses and one should be cautious
and selective in this space.
Equity investment strategy should be to stay put
and ride the storm of volatility and panic corrections. With reference to FII out-flows over the last few
There are several companies that are benefiting due months, we may be unable to predict it’s direction
to shift from unorganised to organised sector (real for the rest of 2022. However, what is impressive is
estate/building products), digital wave (technology), the rise in domestic equity culture and flows into
import substitution / local manufacturing (pharma/ equity market. Domestic institution investors (DIIs)
chemicals/electronics/defense) and green energy and retail investors have demonstrated strength
(sugar ethanol/electric vehicles beneficiaries) makes to counter FII selling. Growing equity culture in
sense for long-term investing. We are witnessing India is just the beginning (tip of the iceberg !) v/s
strong cyclical recovery in real estate sector (low traditional forms of investments like fixed deposits
interest rates/work from home), financials/NBFCs / gold, which is no longer preferred asset class. This
(worst of NPA cycle behind) and engineering and domestic investment itself will overtake or absorb
capital goods (due to higher capex cycle). Any FII outflows if any.
exaggerated reaction in equity market to such events
should be a buying opportunity as it is likely to be Overall, the structural foundation of this bull
temporary or short-lived corrections. Market will be market is very much on with low interest rates and
driven by strong growth recovery in several Indian earnings revival despite near term cost pressures.

businesses from consumption to real estate and Though, some pockets of market are no longer cheap
capex-led cyclical, that have come out of a multi-year and one needs to be selective and increase tenure of
slowdown. holding period to expect reasonable returns. Every
war is different but most are not associated with a
We have been cautious in our previous strategy recession and stock markets usually find a bottom
notes on excessively priced IPO (primary issues) early in the conflict. The fear is already getting
given frenzy valuations in majority. We had discounted by the market and lessons from history
highlighted that its better to buy growth companies suggest that such war-like events, in disguise, prove
that are reasonably priced. Several new age digital to be great investment opportunity for long term
companies that came to market, were indiscriminately investors. Hence, buy and hold approach in portfolio
chased by retail investors without looking at their makes sense to take advantage of the beginning of
business models or valuations closely. While they a very secular growth in the economy. It is wise to
are disruptive companies, many are still in cash burn remember that equities have generally paid off in
stage and valuations have been driven by hope and the long run !
were pricing or discounting far ahead of time. Hence

The Institute Of Cost Accountants Of India

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