We believe the consumer discretionary theme will get a huge fillip from an increase in per capita income. We are positive on sectors like BFSI, Industrials, Auto, and Consumer discretionary among others. To know more about growth-based investing, Srajan Agarwal of Elets News Network (ENN), had a conversation with Pawan Parakh, Director, Renaissance Investment Managers Private Limited.
What are the key highlights of corporate earnings in recent times? Do you expect earnings upgrades going forward with the digitisation?
On the negative side, margin compression and weak rural demand have been the highlight of the corporate earnings so far. In the backdrop of the secular increase in commodity prices, compression in margins was on expected lines and hence there hasn’t been a meaningful cut in consensus estimates at the aggregate level. Digitisation per se is unlikely to drive earning upgrades in our opinion. Moderation of global inflation and geopolitical tensions do hold the potential to drive earnings upgrades.
What approach should Renaissance’s retail investors adopt in the current scenario of digitisation?
Over the last 3-4 years, we have been maintaining our view that companies across all sectors have to align their businesses digitally. Companies delaying or deferring digital adoption will face serious growth headwinds over the medium/long term and hence retail investors should be watchful of this. They should exit companies which are not digitally savvy. On the other hand, companies which are digitally native, investors should assess the business model for long-term viability.
Does Renaissance look out for value stocks or growth stocks in terms of investing from a long-term term perspective?
At Renaissance, we are believers of growth based investing. In a growing economy like India, there are ample opportunities to spot companies which can grow their earnings at a 15-20 per cent rate for a long period of time. Growth based investing enables us to benefit from the power of compounding. Our exposure to value stocks is generally very low.
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What are the major challenges faced by the organisation in terms of technology deployment? What measures are taken to overcome them?
The one big challenge is the change in mindset. Tech companies think differently as compared to traditional businesses. Hence a management with traditional mindset is unable to unleash the output/ efficiency for its investments. For some companies, investment in technology comes along with upfront costs but delayed revenues, which deters them from committing optimum capital in the near to medium term.
What are the key themes you are betting on over the next 5 years?
We believe the revival capex cycle and manufacturing in India will be one of the key hallmarks of India’s growth story over the next 5-10 years. Consumption theme continues to do well. Within the consumption bucket, we believe the consumer discretionary theme will get a huge fillip from an increase in per capita income. We are positive on sectors like BFSI, Industrials, Auto and Consumer discretionary among others.
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