First of all, we must familiarize ourselves with Alroy Lobo’s credentials. The best way to do that is to read his interview in Saurabh Mukherjea’s “Gurus of Chaos”. In that, Alroy explains that he and his team at Kotak are focused on “valuations, businesses and management”. He is not a “value investor” and will not buy a stock only because it is cheap. It has to be a good business with good management and available at good valuations. Alroy also revealed that he and his team are disciplined and that even “star stocks” and “fantastic companies” like Eicher Motors, HDFC Bank, Sun Pharma will get sold if they get overvalued.
In his interview to CNBC TV18, Alroy oozed confidence that “we are definitely going to see good markets for quite a few years”. He added that “India is now a multiyear story and what you see in 2014 is perhaps just the beginning”.
Alroy predicted that the markets would give a return of (at least) between 15-18 percent CAGR over the next couple of years. This boom would come on the back of a recovery of earnings. He indicated that the earnings can be expected to shoot up post FY16 when the GDP growth rate would show an uptick. “When you get strong earnings growth, you also get a P/E expansion and therefore I believe that an earnings led growth in market is going to be far stronger for equity returns” Alroy added.
In terms of sectors and stocks, Alroy made it clear that his money is on private sector banks for the reason that “it is a fantastic proxy for the economy”. He pointed that while PSU Banks would also gain from the interest rate cuts, they have a lot of things to resolve such as raising capital and asset quality.
He also indicated that his funds (Kotak Select Focus, Kotak 50 etc) are overweight rate sensitive stocks in anticipation of the easing of the monetary conditions. He is, however, wary of infrastructure stocks.