4 Sectors This Investment Sage is Meditating upon
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Samit Vartak founded SageOne sheer out love for equity investments in 2012. The Pune-based portfolio management services cater to Ultra HNIs both domestic investors and offshore.
For the foreign investors, the company runs an offshore fund which is targeted towards international endowment funds, family offices of US, Europe and Asia. The Cayman Island fund is managed out of Singapore due to regulatory constraints.
Since 2012, SageOne has grown to an INR 850 cr asset management company. With its strategy of ‘concentration’ and ‘buy and hold’, SageOne’s concentrated and diversified funds have outperformed some of the of country’s best benchmark indexes. For example, SageOne’s Concentrated Portfolio registered returns of 34.5 per cent, while SageOne’s Diversified Portfolio marked 35.2 per cent return as against BSE 500 11.8 per cent FY2018.
Discussing his firm’s strategy, Vartak says, “In investments, one can take the risk of market cycles. However, it is very important for investors to understand which businesses you don’t want to pick and this will help minimise risk.”
Hence, Entrepreneur India asked Vartak to share four industries he is most bullish about. And here is what he had to share (edited excerpts):
I can see a structural change going on in the speciality chemicals segment.
China controls almost 70-80 per cent of the market. The cost of manufacturing these chemicals was lower in China because of obvious incentives and the government barely cared about the pollution.
However, having said that, China’s outlook is changing. The country is shutting down a lot of plants as a pollution control measure. This will directly impact the Chinese manufacturing businesses which were dependent on these chemicals and hence, they are likely to scout for new vendors.
While on the other side, most of the plants in India are pollution compliant. And with China's crackdown, the cost structure is close to where India is. In other words, Indian speciality chemicals manufacture can compete against the Chinese counterparts.
By any chance, if China manages to make a comeback, their pricing will hover close to what India offers. And hence, I feel there is a huge potential for speciality chemicals segment in India.
Building materials is an extremely unorganized market in India.
However, after the e-way bill, which was recently introduced, I believe that a lot of cash-driven business will either shut down or their cost will go up as they will have to pay taxes.
So, around 70 per cent of the market will open up for the formal guys and there are just handful of them. And that's the space, I am very bullish about.
Auto Ancillaries are component suppliers to the OEMs but I am more positive on consumables.
When you study a business there are certain components which can be used only once in the lifecycle of the vehicle, it can be engine or camshaft.
But then there components like cables, tires or bearings and it needs replacement time to time. These consider consumables in the auto sector and the demand for such products are generally stable and hence, the businesses cycles are much stronger.
However, in the auto ancillary, you have to be careful about electric vehicles entry as they might end up replacing the combustion engines and some of the businesses might shut down. So, be careful of what you want to touch and what you don't want to.
I really like the data consumption story.
If you look the stock market, the consumer stocks - like Page Industries, Asian Paints or HUL, they are super expensive and are trading at 70-80 times PE (Price-Earnings) multiple.
I feel people, especially the younger generation, is consuming data more than any other item today. There are studies which have claimed data addiction is more addictive than alcohol and tobacco.
Now, the telecom industry is the supplier of data but they are busy fighting amongst each other, so you won't make money as an investor. However, one can look at say the fibre optics segment. The product is used to transmit data.
Today, the 3G speed is so slow that you can transmit it to wireless. Once we move to 5G, you cannot transmit data through wireless. If you look at a developed market like China and the US, data is transmitted to fibre optics.
What China spends on fibre optics in one year, India's hasn't spent on it in the country's entire life. Globally, there only eight players in this market and one of them is in India. So, when the world moves from 4G to 5G, the demand for the product goes by 7x.
The idea here is to look beyond the telecom companies, eye the ancillary players.