Koustubh’s Portfolio

Happy New Year!
Lately I have been noticing the following in the market:

• 1. Significantly higher price and volume action in SME and MicroCap segment of the market.
• 2. Indices rallying on the basis of traction in concentrated pockets/constituents. Not secular.
• 3. Pre-emptive moves being more pronounced than the last few years. For instance the move in adani stocks leading up to the court hearing.
• 4. IPOs being priced at the maximum followed by a very clear dip in the IPO action (both mainboard and SME).
• 5. Every analyst, fund manager, brokerage report yelling that they find ‘comfort’ in large caps and find froth in small caps.
• 6. Investors celebrating outperforming the daylights out of Nifty on twitter at the end of the year.

The saying ‘Markets can remain irrational longer than you can remain solvent’ couldn’t be more true. My sense is that markets in 2024 will be great for bottom up stock investors – especially in the small and midcap segments. When I say this I mean investors who pick quality stocks (basis healthy cash flows, reasonable growth, able management, private capex, controlled debt/equity amongst others) would probably be the only ones who outperform the market this year. Irrespective of events such as the general election and its outcome (which seems pretty clear at the moment), my sense is that the frenzy in PSUs such as defence and railway companies, low quality banks etc will come to a hault soon.

The winds are changing directions. What do I believe will work? Speciality Chemicals, Pharma value chain, good quality financials (large private banks, NBFCs, home financiers, auto lenders etc.), Industrial goods, and segment wise – I think some interesting microcaps trading at extremely cheap valuations will get explored and value there can get unlocked. Turning bearish on the back of high earnings multiples and “valuation discomfort” etc might have worked in 2023 but once margins recover (soon), these counters will see institutional money rushing in to them.

Speculation corner (because why not?): The markets may experience a 15% correction.

[Going to disclose my updated portfolio here in the coming threads]