Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
"The economy hasn't picked up sufficiently as yet." - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 4, 2000

    "The economy hasn't picked up sufficiently as yet."

    A post-graduate in Business Administration, Mr. Vibhav Kapoor learnt the ropes of the business during his stint in the Unit Trust of India (UTI) as the man in-charge of Corporate Finance and Equity Research. He honed his skills further as a portfolio manager in the merchant banking division of ANZ Grindlays Bank. At present, he is the Managing Director of Infrastructure Leasing and Financial Services (IL&FS) Asset Management Company. The AMC has launched two mutual fund schemes in the domestic markets.

    In an interview to www.equitymaster.com Mr. Vibhav Kapoor, MD, Infrastructure Leasing and Financial Services (IL&FS) AMC spoke about the trends in the economy, the portfolio composition of his fund and the valuations of the infotech sector.

    EQM: Could you tell us something about your schemes?

    Mr. Kapoor: We just had the Bond Fund earlier and then we launched the Growth and Value Fund about a month ago. We will be launching the Technology Fund in January. We hope to mobilise Rs 800 to 900 million for this fund. In all, we hope to be managing Rs 5 bn by March 2000.

    EQM: A word about your stock selection, fund strategy and sector allocation. You seem to have allocated a large portion of your investments to the IT sector. At least your top 10 holdings seem to be revealing that.

    Mr. Kapoor: At present, we have a growth and value fund. We follow the bottom up approach. As far as value is concerned we invest in companies at the low end of the cycle. As far as growth is concerned, at present, it is the infotech sector, which is growing the fastest. Hence a large portion of our fund, I'd say around 50% is into the infotech sector. We can invest up to 25% in software, hardware and IT training each but the overall investment in the infotech sector as a whole would be around that level. Amongst the other sectors we have an exposure to cement and refinery stocks.

    EQM: You are floating an infotech sector specific fund now. Do you still find growth potential in IT stocks at these levels?

    Mr. Kapoor: Investments at these levels are justified if a company is good enough to post compounded annual growth of approximately 50%-60% for a reasonable period say till 2003-2004. There will be many opportunities still since there is room for the software sector to grow. There are good unlisted companies a few of whom would be likely to go public. I am not saying that something like a Software Solutions Integrated (SSI), which has grown over 30 times, will be a ten bagger from these levels. What I am saying is that if the company keeps growing at 50% over the next five years it will give you very decent returns. What I am also pointing out is that if out of 40 companies which make their IPOs you are able to identify even 5 companies which grow into ten baggers the returns will be very decent. For instance in the earlier fund, which I managed, we bought Visualsoft at Rs. 30 and SSI at Rs.60.

    Basically companies which are able to change and adapt their businesses to the internet should do well. Here I am not talking about dot com companies. It is difficult to comment on their future valuations. I am referring to those companies, which provide services to such companies or web enable other businesses. There will always be growth for such enterprises.

    Over the years, one can demarcate three big growth phases for software companies. The first opportunity came during the shift from mainframes to client server. Y2K provided the next big opportunity and the third phase will provide big opportunities for companies, which provide web-centric solutions; companies that web enable businesses and companies that provide services relating to the net. Companies that have exploited these opportunities, and have made the transition successfully have done well. For instance, Satyam Computers exploited the Y2K opportunity but managed to reduce its Y2K exposure at the right time. Other companies such as Visualsoft, which focused on product development, tool development, wireless related technologies have also done exceedingly well.

    EQM: But how would you justify the valuations of the software sector?

    Mr. Kapoor: Assuming the economy grows at 6% and industrial growth is between 8-9%, if the inflation rate is around 5-6% a good company whose growth is dependent on the GDP would grow at 15% over the next two to three years. If a software company were to grow at 50-60% compounded over the same period you can equate their PEG (price earning to growth multiples) and still find software valuations appealing.

    Despite Infosys' stock price (Infosys was quoted at Rs. 9,700 the day we met Mr. Kapoor) having taking off there is still potential for growth considering the fact that Infosys' employee productivity is around US$ 40,000, while there are similar companies in the US with employee productivity of around US$ 120,000. And mind you Infosys' productivity has actually doubled over the past three to four years. Even if one were to take productivity improvements of 5-7% per annum and a rupee depreciation of 4-5% there is still scope for a sizeable jump in productivity improvement itself.

    EQM: What is your view on the IT training segment?

    Mr. Kapoor: I expect the training segment to show a 30% compounded growth. Computer training in schools and universities would provide the big push for training companies.

    EQM: What about NIIT? The stock got hammered the day the management mentioned that they would grow at 30% compounded over the next three years...

    Mr. Kapoor: NIIT has approximately 50% accruing from training, the rest from software development. Assuming that training grows at 30% and software at 50%, you are looking at an average compounded growth of 40%. The 30% growth estimate of the management was actually an understatement.

    Coming to your point of the fact that the stock got hammered, at that point the stock was quoting at levels of Rs 3,400, which was around 65 times. The price subsequently got corrected to mirror the future growth prospects.

    EQM: What other sectors are you looking at?

    Mr. Kapoor: I am optimistic about sectors like cement, select commercial vehicle and auto ancillary companies.

    EQM: The last I met you, you were bearish on Telco...

    Mr. Kapoor: Telco's CV business is doing well, however, the Indica is affecting its profitability.

    EQM: What do you have to say about the pharma sector?

    Mr. Kapoor: Its best to adopt a bottom up approach and not look at the pharmaceutical sector as a whole. There are segments like Indian companies and MNCs, research based companies and ordinary company, bulk drugs companies and formulators. Therefore I look at companies on an individual basis.

    EQM: But with the trend toward setting up 100% subsidiaries by top-notch MNC firms such as Pfizer you anticipate there will be a dichotomy in the multiples that pharma companies get?

    Mr. Kapoor: There is definitely an apprehension among the investors about a wholly owned subsidiary competing with another listed subsidiary. Apart from Pfizer, this is also the case with other industries. That is why Hero Honda despite posting excellent growth still finds its stock going nowhere. This is despite the fact that Honda's wholly-owned subsidiary would be competing in motorcycles 4-5 years later.

    EQM: Your comments on Bajaj Auto's valuation...

    Mr. Kapoor: We are not comfortable with Bajaj Auto mainly because they are sitting on Rs 30 bn and no one has any idea what they plan to do with it. If they don't plan to do anything, they should just give it to shareholders. Besides, it's not the scooter market but the motorcycle market, which is actually growing.

    EQM: But with the stock plumbing to its 52-week low, would you look at it from a value perspective?

    Mr. Kapoor: At some point in time, probably yes.

    EQM: You also mentioned refinery stocks forming a part of your portfolio...

    Mr. Kapoor: Primarily for three reasons first the likely relaxation of the APM before 2002, second the possibility of merger between the stand-alone refineries and marketing companies and third the attractive valuations.

    EQM: Your call on the economy in general and interest rates in particular...

    Mr. Kapoor: I anticipate interest rates to remain around the current levels. I don't expect any cut in the lending rates as long as the interest rates on provident funds are not cut. Inflation too seems to be remarkably under control, which in a way is reflective that the economy hasn't picked up sufficiently.



    Equitymaster requests your view! Post a comment on ""The economy hasn't picked up sufficiently as yet."". Click here!


    More Views on News

    The Right Financial Advisor Is Around the Corner (Outside View)

    Mar 10, 2016

    An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

    Why financial planning should be dull and boring (Mutual Fund Corner)

    Feb 29, 2016

    Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

    What Are E-Wallets And How To Use Them (Mutual Fund Corner)

    Feb 12, 2016

    PersonalFN highlights the benefits of parking a portion of your expenses in e-wallets and using them efficiently.

    Is Consumption Boom Over In India? (Mutual Fund Corner)

    Feb 2, 2016

    Mutual funds take a bearish call on the FMCG sector. The sector has started playing out due to a combination of slower growth and expensive valuations.

    How to Find a Saint Amongst Sinners? (Mutual Fund Corner)

    Feb 1, 2016

    Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms