ETMarkets Smart Talk: Siddhartha Bhaiya explains his 3 step multibagger approach to investing

“It is very simple, not complicated, there are three cornerstones to our multibagger approach. The first and foremost is that we focus on value, second is that we focus on the future growth of the business, and lastly deploy a contrarian approach to investing,” says Siddhartha Bhaiya, MD & Fund Manager, Aequitas Investment Consultancy Pvt Ltd.



In an interview with ETMarkets, Siddhartha has more than 2 decades of experience in capital markets, said: “We buy industry leaders and one trait that we see across industry leaders is companies which do well during bad times are the companies which are more resilient” Edited excerpts:


A Chartered Accountant with more than two decades of experience in the capital markets. What attracted you the most is it the money or the inquisitiveness?
If anyone tells you that they are in the markets for anything other than the money – they are lying. We come to stock markets to make money.

A lot of chartered accountants once they clear the exam want to get into the markets. I was very clear that I wanted to be in the markets the moment I cleared my CA exam.

Luckily for me, I had the opportunity to read Buffett and Lynch and got inspired by them. I thought that one can make money through hard work in the stock markets. Clearly, that was the beginning point.

At some point in time, you have to evolve, and right now it is about creating a track record and making a name for yourself. You outgrow money at some point in time.

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Money becomes a barometer for success. Yes, to begin with, it was all about money, today it is more about creating mark.

There is this debate in the market luck or skill which makes you better money manager what are your views on that?
You could get lucky for a little in any profession, but long-term success totally depends upon your skill. If you really want to make money over a period of time its a skill that comes in handy.

In the long run lucks (good or bad) evens out whether it is cricket or the stock market but what matters is a skill in the long run.

How should retail investors distinguish between luck and skill?
You have to understand one thing even as professionals that there are at times when we make money not because of skill but because of luck and there are times when we lose money while our skill will be perfect or reasonably perfect.

We also need to distinguish between whether you made money because of luck or because of skill — that it is very important to understand.

At times where we lose money but at the end of the day, there was nothing wrong with the process just that something happened in the future after we bought the stock.

It was nothing to do with your skill but more to do with your luck. There are times where you make money because the market is booming like 2021 and it did not require any skill.

Wanted to pick your brain on the current market environment as well. Do you think that worst is factored in?
I think too early. We had too many excesses globally and nobody wants to hear that. Everybody wants to hear saying that oh! there is going to be a bull market because everybody likes to hear good stories, but the fact of the matter is look we had 10 years of very low interest rates.

We had 10 years of unbridled money printing. Heading into 2021 you had too many excesses whether it was cryptos, NFTs, Nasdaq, the IPO boom in India, the unlisted space in India, or valuations 100 PE multiple stocks.

I think it is going to be course correction in the stock markets. I see pretty long winter for the stock markets to be honest. It is going to be narrow market from here on, probably a new set of stocks come to the fore but lot of people are going to burn their hands badly.

Do you see risk off sentiment in markets amid rise in interest rates?
A lot of people got swayed to the stock markets because of the low interest rates because they were not getting any yields in any other asset class.

Most of these people came in in the last couple of years so like 2021 was great, 2022 has been brutal for a lot of stocks.

I would really want to see if interest rates go up, and if that happens, I see a lot of money moving back from equity markets into fixed deposits and real estate and go to the traditional sectors where Indians have typically tended to invest.

Rupee at 80 so how does the life change for investors, companies as well as FIIs?
It is going to be tough because the more your currency depreciates, the harder it becomes for these governments and the central banker to control inflation because a lot of our inflation is imported inflation, predominately crude.

If the currency depreciates your relative wealth keeps on deteriorating. It is bad but good for a lot of manufacturing companies particularly which are focussed on exports.

While we are bearish on the markets, a lot of sectors which we are bullish on such as sectors that are in exports or B2B manufacturing. I think those are companies which are going to benefit from a falling currency.

Yes, nobody wants a depreciating currency but that is what it is and the biggest impact, the biggest downside for us is crude. If crude goes up any more from these levels, the currency could be in further trouble.

What is your multibagger approach and throw some light on that as well?
It is very simple, not complicated, there are three cornerstones to our multibagger approach. The first and foremost is that we focus on value, the second is that we focus on the future growth of the business, and lastly deploy a contrarian approach to investing.

Our first mantra is to buy value, value, and value. If you are going to buy value in the long run it is going to be very difficult for you to lose money. Look at which stock is making a 52-week high today –

.

It represents a lot of value when it was trading at Rs 180-190 in the past. It was available at 12-13 times earnings with a lot of cash on the balance sheet.

So, picking value, in the long run, is never going to harm you. In fact, that is the only way to make money in the long run.

The second and most important is growth. The concept of growth is futuristic, what has happened in the past is irrelevant.

And third and the most important is a contrarian approach to investing. Contrarian does not mean doing the opposite of others — it just means doing things differently from others.

Whether it is

, whether it is Larsen & Toubro whether it is ITC they all just represented contrarian bets. For example – auto sector has not given any returns in the last five years. 3-4 months back everything was negative, oil high, commodity prices high, EV disruption happening, interest rates high, semiconductor shortage but the only thing that favoured was valuations.

Now a lot of those things have course corrected. It was completely contrarian, as nobody was talking about it. Nobody was talking about Mahindra & Mahindra which is now hitting fresh 52-week highs.

What makes a company good or bad, a company that has created wealth in good times or the one that stood firm amid bearish sentiment?
We buy industry leaders and one trait that we see across industry leaders is companies which do well during bad times are the companies that are more resilient.

There are fund managers who do well during bad times, you would want to invest with them because everyone does well during a boom time or in a booming stock market or in a booming industry the more reckless you are the more money you will make.

As Buffett says it is only when the tide goes away you know who is naked. So yes, we always love to buy companies which do well during bad times.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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