'Compounding is an underrated marvel': Jiten Doshi, Co-Founder and Chief Investment Officer, Enam AMC

In an interaction with Business Today, Jiten Doshi, Co-Founder and Chief Investment Officer of portfolio management company Enam Asset Management Company, shared his insights on India’s growing equity markets. He also shared his views how an investor can become a crorepati by investing in high-quality businesses. Offering valuable perspectives on asset allocation, valuation risks and emerging themes, Doshi highlights patience, discipline, and the power of compounding in wealth creation. Edited excerpts:

The Sensex has rallied more than 12,000 points so far in 2024 to hit all-time high of 85,978.25 last week. What is your projection for the future direction?

Before we think of a high, we need to put things in context. A life-high is an indication of journey travelled thus far, and more a milestone in a long journey. There have been multiple occasions where we have crossed these life highs to see a new one. Equity investing is a marathon and hence this new high is just a small milestone in the wealth-creation hike.

We are firm believers that the global line of wealth is re-entering India in the coming decades. There is a medium-term target of reaching $10 trillion GDP by the end of this decade and possibly $30 trillion by end of next 25 years (as envisioned by our PM). Equity as an asset class provides a sustained opportunity participating in this journey. Thus far, markets have delivered 13-14% CAGR of the last 3 decades. We expect this trend to accelerate in the coming decade(s) given multiple growth vectors like at inflection GDP per capita, primed up right-sized macro, strong and sizeable domestic market anchor, proactive and prudent policy support, consolidated industry structures, dominant undercurrent of digitisation and increasing significance in global supply chain and policy corridors.

Even one assumes a fair market capitalization-to-GDP ratio of around 1.2 it suggests that markets can safely more than double in next 5-6 years. Individual stocks depending on situations can deliver higher returns.

Which sectors appear to be risky in terms of valuations? Are there any that you would consider too expensive to touch?

The cheapness and expensiveness are terms operating in a relative world. Hence when we do evaluate these aspects, we need to get our frame of reference right. On its own, a look at the basic price-to-equity ratio, price-to-book value ratios – certainly we are trading in unchartered territories. However, prices are slaves of fundamentals, sentiments, and liquidity. When all the three are favourable, markets tend to trade in a higher band than one that is perceived normal. In this new normal either or all these need to turn adverse for any course correction.

Further, there is always a difference in themes versus fads. We did witness a segment of the market like PSU, defense, railway infra performing in the recent past – a part driven by positive shift in fundamentals, a part driven by pockets of undervaluation and part by extended speculative optimism. At these levels, market is adjusting for the part overoptimism in some of these pockets.

Valuation is an art that relies on both numbers and perspectives. Every price has an embedded growth and return assumptions along with perceived sustenance of both through the future. Markets seem to give a higher weight to the near-term growth though in most of these cases. As it stands, in the period of optimism the excel sheets extend the longevity perception of the performance delivery—only to get adjusted over a period as rationality sets in.

What strategies can a person who has just started earning use to build a substantial corpus or become a crorepati over the long term?

Who doesn’t want to be crorepati. In our childhood we dreamt to be a lakhpati. By the time we had our first lakh earned – the significance of one lakh rupees had reduced, and the finish line kept extending ever after. Like Buffett and Munger highlighted secret of their wealth – to be a billionaire one needs to leave the greed to make it faster. Compounding is an underrated marvel as to execute it one needs persistence, consistency, commitment, grit, patience and a calm separation from results.

To make a crore is simple but not easy. Start with Rs 1,000 and make it 10x 4 times, sequentially. Sound great right. However, there lies the puzzle – one needs to possess skills to identify those opportunities and keep getting them sequentially – something that is certainly a game of skill, equanimous engagement, patience and yes luck too.

We are in the business of investing wealth for UHNIs to assist sustained generational wealth creation – something we have demonstrated through our 20% plus CAGR for more than 25 years. We feel the road to be a crorepati goes through the gates of part ownership (through byte sized fractional equity) of high-quality businesses that are structurally well-positioned, have sustainable competitive advantages, run by able managements, strong execution capability, delivering consistent long-term growth. When you find any such business put your possible optimum kitty, get into the ride and stay put for lifetime. Why a crore – one can generate much bigger monies.

Which themes do you believe will drive the next market rally? Why?

There are multiple tailwinds playing out for India. India offers a unique emerging market opportunity with near-developed market architecture. India’s economic landscape is primed for a prolonged growth trajectory, underpinned by demographics, digital transformation, democratic stability, and holistic development initiatives. This nexus is accelerating megatrends spanning premiumisation, fintech proliferation, market consolidation, healthcare upgrade(s), formalisation, urbanisation, import substitution, and manufacturing resurgence, alongside a generational capex upcycle. For discerning investors, this paradigm shift presents compelling alpha-generation opportunities across sectors such as aspirational consumption, consumer discretionary, home improvement, BFSI, capital goods, and healthcare. These verticals, poised to harness structural economic transitions, offer potential for sustained outperformance in long-horizon investment theses.

How one can invest Rs 10 lakh in this market? What should be the optimal asset allocation strategy in the current market environment?

This answer will differ from person to person. What matters when you allocate is your current income, your responsibilities, commitments and goals, your stage in your own life cycle and ability to take risk. Any investment has four components returns, risks, time horizon and costs. An underlying factor to all these four is quantum of liquidity of the investment(s) under consideration. The most favoured ratio for equity component is (100 minus age) as percentage. As a staunch equity follower, I am 100% for equities. However, while advising my dear ones/friends, my favourite is – “identify asset classes that rhyme with your persona and just split equally”. I would still say in the current situation, a middle-aged person can be around 50-55% in equities, 30-40% in fixed income and 10-15% in gold (given its increased relevance in the changing global economic order and reduced faith of fiat currencies).

What is your view on outperforming power and healthcare indices? How do you see these sectors going ahead?

Power and healthcare are critical sectors of the economy. We remain positive on healthcare and expect a strong growth runway. We feel for a 1.4 billion population the sector story at $25 billion has just begun. The sector benefits from its deep engagement in the global value chain from research, manufacturing, distribution, and execution. Backed by a strong domestic anchor, sustained flow of quality talent at scale, and India's cost advantage – we feel the sector should continue to deliver a superior growth-return profile, enabling its sustained outperformance.

While we remain positively biased on power, the utility nature of the large participants and the evolving terms of trade in the value chain make it a complex opportunity. The conventional thermal power has received a fresh lease of life given the increased peak demand. One can expect pockets of equipment vendors, value chain participants in renewable space, and new energy to benefit and evolve in their size as we power ahead to deliver 2030 commitments on green power.

How do you assess the current state and outlook of the defence sector?

The positivity on defence sector emanates from its criticality in the emerging world of increasing geo-political conflicts, with an increased focus from Indian policymakers to enhance local components in manufacturing, and increased thrust on tech transfer-backed engagements with higher manufacturing component. The opportunity size makes it a long growth way for companies with an advantage in technology, leadership, partnerships, and early mover advantage. Most stocks have benefited from multiple concurrent tailwinds in terms of improved narrative, under-ownership, and the designated flows from thematic funds. The fact that most of these players are subjected to the concentration risk in terms of domain as customer was ignored. In the current phase, some of the froth is being addressed. From here on, more than fads and frenzy, the theme will ride the latent velocity of earnings and cash flows.