Naveen Chandramohan is the founder and fund manager of ITUS Capital. He expects volatility to increase in the second half CY21, but believes the overall trend to remain bullish.Benchmark indices posted nearly 11 percent gains during the first half of CY21, while the broader markets outpaced the frontliners, as the BSE Midcap & Smallcap indices gained 25% 38%, respectively.As a result, the primary market was active in terms of IPOs and total funds raised in the first half of CY21. This was more than all of CY20."The bullish market is when the primary market turns strong and we are clearly in one." Chandramohan stated that the supply should record volumes over the next six months in an interview with Moneycontrol's Sunil Shankar Matkar.He claims that Zomato, the food delivery company, will be the most oversubscribed public issue ever, surpassing the Coal India IPO of 2010.Edited ExcerptsQ: In the first half of CY21, the market gained more that 10 percent. What are the drivers for the market's growth?Extrapolating returns is a favorite activity of humans. This is what causes fear and greed in the market. The growth in company earnings over the second half CY21 will be more positive than the base case 10 percent rate. It is difficult to predict how this will translate into equity returns over the next six months.Nifty's cash flow growth was 96 per cent for the period March 2020-2021. However, Nifty's returns over that same period were 72 percent. While the cash flow growth will drive the returns, the path can be altered.Q: BSE Smallcap and Midcap indices outperformed benchmark indices by more than 25% and 38% respectively in the first half of CY21. Are you positive that the broader markets will continue outperforming in the second half CY21?It's crucial to focus on individual businesses rather than the indices as the sector valuations begin to normalize. While specific businesses in the smallcap and midcap indices should see the same performance, it's harder to predict the overall index's performance. The second half will see more volatility than the first, but overall the trend is bullish.Q: After a few weeks of quiet, the primary market became active again in June. The number of IPOs in the first half of CY21 and fund raising has already exceeded that of IPOs in 2020.It's not surprising, is it? Bullish markets are a time when the primary market is strong, and we are clearly in one. In terms of volume, the supply should record new volumes over the next six months. The Zomato IPO should have the highest oversubscription (beating Coal India IPO). Over the next year, there would be more consumer-focused businesses that could access the primary markets.Note: Zomato, a food delivery company, filed a draft red herring prospectus to Sebi, capital markets regulator in April 2021. It sought to raise Rs 8,250 crore by way of an initial public offering.Q: In the first half of CY21, metal was the most profitable sector in terms of returns. It was followed by power, PSU and IT, capital goods and banks. What sectors could have the highest returns in the second half CY21? And what might be underperformers.It's no surprise that cyclicals have provided the highest returns in the past 6 months. It is important to realize that investing does not have to be about changing sectors every six months, with an eye on which sector will provide the highest returns. It must be about a process.Let's take it another way. An investor could buy or sell houses depending on what area or geography will appreciate the most based on the season. One takes a long-term view and looks at the area. This same mentality must be applied to equities. One should have a process and be consistent in capital allocation.As analysts and bottom-up investors, we are looking for cash flow growth. We would prefer to invest in businesses that we know the culture and management of.Q: What's your opinion on the telecom industry? Are you a believer that there might be another tariff increase before 2021 ends?If you look at any sector in India, I will tell you that it is a duopolistic one. The market will re-rate these two companies from tomorrow as this dramatically changes the industry's dynamics, profitability, and cash flow generation dynamics. There are two areas that are currently duopolistic, but telecom and airlines have not been able to create long-term wealth. Because of the nature of the industry, expansion is funded with debt. The return on capital over long periods is difficult to beat because of the high cost of capital.The ARPU has increased, which should lead to a filip in topline growth. However, converting this into Free cash flow has proven difficult. This is not in our investment philosophy and we would avoid the space. Trading is a profitable business, but it would be difficult for us to make any money. We wouldn't have any advantage in this.: Investment tips and opinions expressed by Moneycontrol.com's investment expert are his and not those of the website or its managers. Moneycontrol.com recommends that users consult certified experts before making any investment decisions.
