Daily Voice | These three sectors won't be impacted by recession at all, says Vikas Gupta of OmniScience Capital

The chief executive and chief investment strategist said that most of the known negatives are priced in.

Black swans can't be priced in at any point in time.

He believes that it makes sense to allocate money to Indian and US equities over the next few months because of their attractively priced prices.

Since their order books are not consumer driven, defence, railway infrastructure, and digital transformation will not be impacted by recession.

What message did you get from corporate commentary?

Over the next few years, the business outlook is positive. Increased commodity and crude oil prices, inflation, global supply chain constraints, and increasing interest rates are some of the apprehensions. The next few quarters could see slightly slower growth and compressed margins.

Business confidence has been boosted by a clear growth outlook over the next three to five years.

Do you think the valuations are reasonable now that the market has corrected?

It's absolutely true. The Nifty PE is lower than it has been in the past. Numerous companies with strong balance sheets, persistent competitive advantages, and strong growth are available at significant discounts to their intrinsic values, if you dig deeper into the broader market.

There are companies in the top 10 of Nifty which are mispriced.

Because there are so many companies to choose from, an investor shouldn't just load up on his favorite company. Diversification across sectors and industries is a must for a portfolio. Don't load up on the next 100bagger. When a lot of companies were cheap in the 70s and 80s, Warren Buffet was happy to buy many of them.

Do not follow the concentrated portfolio narrative. You can create a 100 bagger portfolio with a diversified portfolio. Peter Lynch had 1,400 stocks in his portfolio and beat Warren Buffet.

How can you make your portfolio inflation-proof?

There is a portfolio of defence companies that have no correlation with inflation. The order book can be seen for a long time. Most of the company's orders come from the government or defence organisation. There is a railway infrastructure company portfolio. Five years is a long time to have order book visibility.

We have a digital portfolio. Most of these are stocks with exports. It's related to inflation here. The rupee tends to depreciate when the inflation is higher. The IT exporter can increase their revenue and profit. All of these will not be affected by recession since their order books are not consumer driven.

Is it a good idea to stay away from companies that got battered recently?

If someone gets confidence on their business models and long term advantages, and wants to add some of these to their portfolio, then one can consider that. Most of these are negative cash flows over the next few years.

Continuous inflows will be needed during this period. Where is the cash coming from? Where are they going to get cash in a low-liquidity environment? How will they survive if they don't have money? In case of financial services, there could be regulatory obstacles.

Keeping these risks in mind, one can consider creating a venture capital-like high risk portfolio for a very small portion of their capital allocation after a deep study and understanding of their own risk profile. All capital should be lost in such investments.

Which pockets look good at this point in time?

Digital banking, digital transformation, rail infrastructure, defence, power, mobility, EV, infrastructure, digital transformation, metaverse, and housing finance are some of the growth areas in our flexicap portfolio. There are many opportunities that exist.

US stocks should be looked at as well. There are lots of opportunities in artificial intelligence, consumer technology, luxury and millionaires, metaverse, and other areas. One can take advantage of this opportunity if they have the capital to allocate to equities over the long term.

Do you think the worst is over for the market?

Most of the known negatives are priced in. Black swans can't be priced in at any time. Rate hikes are going to happen over the next few meetings. Higher discount rates are being used by investors. Even with higher discount rates, both Indian and US equities are fairly priced. It's a good idea to allocate to these over the next few months.

Do you think there will be a downward revision in growth forecast and further repo rate hike by the Reserve Bank of India in June?

Growth will be slightly lower than previously predicted. The CAGR shouldn't be impacted much if you look at growth up to the year 2025. If not for this meeting, repo rate hikes will be reduced slightly.