What are your thoughts on how the midcap and the smallcap end of the market is doing? Do you see any signs of euphoria or is there a genuine case for rerating? Also, any thoughts on market infrastructure platform companies?
There are certain parts of the smallcap market where there are those speculative stocks, momentum stocks and penny stocks which look overheated and which could be due for a correction now. However, in certain segments of the market, we could see very strong growth over the next few years. Even after appreciating two times-three times a year, we believe there is still space for high returns from here.
Are you a believer in these new age internet stocks for the long term or are you from the camp which do not like them because of their near term non-visibility of cash flows?
This kind of new age investment is good for investors who understand that these players can have high growth for a long period of time but they will have to burn cash in the next few years. These kinds of IPOs are not for very small or novice investors. However, we have seen an extremely good response from small investors also and this could be because it is a household name. All the enthusiastic response that it got from the anchor investors also excited everyone and so a lot of people have been jumping into this IPO without understanding the risk.
Lots of speciality chemicals, green tech kind of companies are coming to the market. Clean Science was one. There are a few others with robust margin profile. What are your thoughts on IPOs of chemical companies which are hitting the street?
If you look at the past two years, speciality chemicals and chemicals as an industry have done extremely well. Because of the supply side issue, product prices have gone up sharply and the spreads have increased. So specialised chemical players or commoditized players all have done well. They have shown extremely good growth both in terms of the top line growth as well as profits.
However, this is a cyclical industry and you cannot basically expect these kinds of growth and profitability to come for years on end. The time has come where one needs to be very careful in this space. You need to stick to only those players with some kind of specialisation and competitive advantage. One should avoid those players who are into mass products though right now, those are doing extremely well. But the valuations have become extremely expensive and they are not accounting for the risk of the downside in that cycle.
Have you looked at Clean Science, Chintan Tatva IPOs. Any thoughts?
We had looked at them and we liked both these IPOs because they are specialised players and are offered at a trailing PE of around 40 odd which is not too bad, given the fact that they are in an extremely fast growing space. These could be held on by the long -term investors. However, some of these players are into mass products where they do not have the pricing power but still they are at 30-40 kind of multiples.
