Stock Market: Vikas Khemani on what he bought during market corrections

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“Disruption is here to stay but in the name of disruption, you cannot buy anything and pay anything and that was precisely what was happening. People who did not understand business models also bought without understanding the price. People bought at 3000 PEs in the private market before it went public. It was clearly a sign of FOMO,” says Vikas Khemani, Founder, Carnelian Capital Advisors


What have you used the recent correction to buy?
We did increase our banking exposure. We are very optimistic about BFSI as a space over the next 24 months because growth is coming about, asset quality issues are behind and marginally rising interest rate helps the banking sector. We are quite optimistic about banking as a sector. So, we have increased our portfolios there. We have added a few names where we can see not only earnings growth but also valuation rerating over the next two to three years.

We have also added automobiles where we think that it is coming out of a low base. There is a lot of pent up demand and chip shortage will ease our opinion in the next three to six months. The growth profile of this entire sector has been very lacklustre in the last three, four years. Nothing has happened and so that sector can sort of do well. These are the two new shifts we made in our portfolio. Otherwise, by and large, it has to remain the same.

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What are you doing with the so-called newly listed universe? They have completed one year and the lock-in period is ending?
I am sure a lot of people are grappling with that. In my opinion, most of the new tech businesses do not have a business model or the business model as they are considered duopoly or competition free is not so. They themselves are facing disruptions from many other quarters.

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Secondly, even the corrected valuation may not be close to a meaningful opportunity. , for example, it is the largest player in the country. It cannot increase prices anymore. They charge almost close to 25% and despite that, if at this kind of penetration if you cannot make money, then when will you make money?
The point is how does one value a company? If you are a monopoly or a duopoly, at some point in time you should make money. So, there is no visibility about when the business model will turn profitable. The point is one has to understand that after so many years in the business, when they have got a large market share and still profit visibility is not there, how do you value such companies?

So froth was there as well as FOMO (fear of missing out). But that has faded away, I maintain that many of the companies which went public, over the next five years many of them may not be even listed. We have seen this cycle many times over in the past. We keep evaluating, it is not that we are blind to new opportunities.

Disruption is here to stay but in the name of disruption, you cannot buy anything and pay anything and that was precisely what was happening. People who did not understand business models also bought without understanding the price. People bought Paytm at 3000 PEs in the private market before it went public. It was clearly a sign of FOMO. Those excesses have been corrected but we still do not think many of the businesses are still in the value zone, where one can confidently say that this is now going to create wealth over the next three to five years.

Secondly, once the momentum is lost, it takes a very, very long time and a serious amount of reimagining of the business to gain the momentum back. All these businesses have lost momentum. The appeal has gone away in those businesses. They have to come back with different propositions or different growth profiles for one to look at them differently. I think it is some time away.



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