BTTV Exclusive: Pankaj Tibrewal on 'Triveni Sangam' and why he is betting on smallcaps

Pankaj Tibrewal, founder and CIO at Ikigai Asset Management Company, said the stock market is a "Triveni Sangam" of earnings, flows, and investor sentiment. After a long time these three things are coming together, Tibrewal said on Monday  in an exclusive interview to BTTV.

The best way to play it is through mid and smallcap space over the next three to four year, the market guru said adding that investors betting on new sectors and opportunities emerging in India would find them largely represented among the next 101 to 400-500 companies by market capitalisation.

“Unfortunately, when I look at the Nifty 100 Index, 60 per cent of the index is concentrated in financials, energy, FMCG and IT, where earnings growth at best could be between 10 per cent and 15 per cent. If you want to look at higher-growth, higher-visibility sectors, you need to have the broader market as part of your portfolio,” he said.

Tibrewal said that with proper risk management, the mid and smallcap space could be very lucrative over a three-to-five-year period.

Pessimism & opportunities

Tibrewal, who spent a considerable part of his professional journey at Kotak Mutual Fund and Principal Mutual Fund, manages Rs 4,200 crore. His firm recently launched the IKIGAI Small Cap Fund, which has delivered strong returns of 25 per cent over the past four months.

Tibrewal said there was extreme pessimism in March. The frontline indices had fallen 12-14 per cent that month, leading to widespread gloom.

“And we thought that was the best time to launch a product that would be beneficial from an investor’s perspective. Mid and smallcap was the most hated word. We were finding opportunities in the small-cap space where we were quite confident that once the scenario normalised, there would be many great companies available at very attractive valuations after a long time,” Tibrewal said.

The Ikigai Asset Management Company CIO said the focus was on companies where earnings momentum could be very strong over the next two, three or four years.

"A lot of people questioned us that whether it's the right time, whether it's the right time to launch a fund. We said it may not be the best time to collect AUM, but it may be the best time from an experience perspective over the next two, three years," Ikigai's CIO said.

Tibrewal said short-term is very hard to predict, long-term is very easy to predict in the market. This is reverse of fact life where short-term is predictable, long-term is not.

Tibrewal when the market was entering the first quarter earning season, there was lot of skepticism because this was the most challenging quarter as for supply chain, raw material and the demand momentum was concerned. The first quarter, he said, is generally a weaker quarter for corporate India.

Q1 earnings surprise

"I think earnings have clearly surprised on the upside. Let me give you some data points till Saturday. A total of 398 companies of top 500 companies have reported results till Saturday evening. The top line growth is the highest in the last 12 quarter, which is three years at 20 per cent-plus. And this is partly because last three years we didn't see inflation coming back," he said.

He added: "So there is a volume growth and there is a price growth led by raw material and other supply chain disruptions and, hence, you are seeing a top line growth at 20 per cent .And when you look at the bottom line growth, it's also again healthy at 13-14 per cent growth. This is even as OMCs have reported Rs 17,000-18,000 crore of losses cumulatively, and they have dragged down the earnings."

Adjusting this, earnings growth was in excess of 20 per cent, Tibrewal said.

Small cap, he said, has definitely the highest earnings growth and it continued the pace over the last three quarters.

Q1 strong, Q2 likely to sustain pace 

Tibrewal said the quarter was also resilient in terms of earnings breadth.

Companies, which reported more than 15 per cent earnings growth, were 45-50 per cent of the top 500 universe in the last 12 quarters. This quarter, the number had gone up to 56-57 per cent of the companies reported till Saturday, signalling a  broad-based earnings growth.

"Many sectors have participated contrary to what the belief was, and the base in the second quarter is also lower, in our favour, compared to the last year. Our channel feedback suggests that the ground reality in the month of July also has been quite good. Many core sectors have seen pickup in terms of demand, which has never been the case in the month of July at least. And hence, uh, obviously the festive season will set in from August. We will see how it goes," Tibrewal said.

He said the second quarter momentum also looks to be quite good.

Triveni Sangam

"This time we have seen more upgrades rather than downgrades, which was the case for the last few quarters. And if earnings comes in, more markets will find its own momentum. That's one. Second, I think the FII selling has reduced considerably. That's actually also supporting the market from a flow perspective. And third, the sentiment. I think sentiment has also turned decisively, which was so negative for India," Tibrewal said on Triveni Sangam that has turned him constructive on domestic stocks.