Samit Vartak's Top Themes While Finding Alpha With Contrarian View
Investor needs to have a contrarion view, be early to the game and wait for the cycle to play out in two to three years.
Even with the market having rallied quite a bit, investors can still find alpha or benchmark-beating returns in some particular pockets that have not caught the eye of most, according to SageOne Investment's Samit Vartak.
Investors have to find those pockets where valuations are attractive, said Vartak, founding partner and chief investment officer at SageOne Investment Manager. They need to "deviate from the herd to beat the market", he told BQ Prime.
The historical trajectory of returns, according to Vartak, has no meaning whatsoever. He advised investors to optimise returns going ahead.
Top Themes
SageOne's investment portfolio is more geared towards building materials, power infrastructure, power finance, micro-finance and gold, and is extremely constructive on real-estate and building materials, Vartak said.
He was very constructive on chemicals and pharmaceuticals until the middle of last year, until he realised that new investors are not benefitting from this segment.
After Covid-19, chemical and pharmaceutical companies were stocking up their inventory owing to logistics issues, Vartak said. These companies, as a result, saw high demand that led to all-time high margins, and made a lot of cash which they used for new capital expenditure, he said.
After normalisation, however, these sectors witnessed de-stocking and overcapacity which Vartak called a 'double whammy'. Hence, margins and the P/E, or price-to- earnings, multiples contracted, he said. The portfolio is devoid of too many chemical or pharmaceutical stocks except for one or two, he said.
Apart from these sectors, the portfolio also comprises stocks that have a completely bottom-up play, Vartak said.
Overall, the valuations have significantly dropped due to the new additions that the investment management firm has done as some of those have the potential to become multi-baggers, he said.
Where Is The Alpha?
The 'flavoured' stock, which everyone likes, will not generate any alpha, said Vartak. "For multibagger returns, you need three ingredients: low valuation starting point, high earnings growth and the third is re-rating of multiple growth," he said. An investor needs to have a contrarian view, be early to the game and wait for the cycle to play in two to three years, he said.
Considering the markets have run up high, there are pockets in the market which have the potential to become multi-baggers, Vartak said. "There are extremes in this market, some are extremely expensive, some are extremely cheap."
The peak of the small cap index has repeated every three years, he said, with the next peak most likely to come sometime in 2024-2025. Right now, "we are in the upcycle phase til the beginning of 2025", he said. "The multi-baggers occur during the peak period."
Watch the full interview below:
