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Well-managed private sector financial services have the potential to grow profitably, says Prashant Khemka

The Sensex finished up 569 points to 61,306 on October 14, up 0.94%. The Nifty50 gained 177 points, or 0.97%, to settle at 18,338.5. Adani Ports, Wipro, Grasim, ITC and HDFC Bank were the main winners for Nifty, up 2-7%. Coal India, Tata Motors, Eicher Motors, TCS and HCL Tech fell 1-4%.

Nifty Bank rose more than 4% this week, recording its biggest weekly gain in five months. The Midcap index was up for the eighth week in a row, its longest weekly gain since 2010. With the exception of computers, all frontline indexes posted gains this week, with automobiles being the index. the most successful. To discuss the way forward for the market, CNBC-TV18 met with Prashant Khemka, founder of White Oak Capital Management.

When asked if this is the right time to enter the newcomer market with a lump sum of money to invest, Khemka said: “My point of view is somewhat biased as I have always been fully invested in the stock markets. It’s the only way to build wealth, that’s what I learned.

“My suggestion to any investor who asks this question is that they should determine for themselves, in consultation with their financial advisors, what is the appropriate allocation for stocks, taking into account risk appetite and risk. personal situation and then stick to it. If it needs to be changed, it needs to be changed in an evolutionary way over many years… not month to month, quarter to quarter or year to year depending on market levels, ”he advised.

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The right way to proceed would be to determine the allocation to equities according to your situation, and to continue investing for the long term because time diversification, like other forms of diversification, is the only free meal and the best way to invest. ‘Mitigate risk while maximizing market returns, he added.

Regarding real estate, he said that the underlying strength of demand has been very strong and that due to the consolidation of the sector, the strongest players have benefited to a much greater extent than in the past. previous bull cycles. “The nature of the real estate industry is quite cyclical, bear cycles are very deep, as are bull cycles. With some form of standardized demand environment in mind, we are still struggling to find strong investment opportunities from a company-specific perspective, where we see a considerable extent of the upside. . As a result, the sector allocation for the team continues to remain very low, ”he said.

When asked if the cycle will turn for private sector financial services, Khemka said this year that they have not kept pace with several other cyclical segments of the market or the market as a whole, but at over time – that is, over the last 10 to 20 years – private sector financiers have selectively delivered very remarkable returns.

He specifies that it is very important to be selective about the sectors we are talking about. “When we talk about private sector financial services, this includes not only banks and non-bank financial companies, but also insurance companies and various service providers which are broadly classified in financial services,” he said. he declares.

“In general, the penetration of financial services is increasing, whether it is non-bank banking or insurance. So most of these companies grow in their mid-teens, and they often also gain market share from public sector companies that had 100 percent market share in many of these segments. Thus, you have the potential for well-run private sector financial firms to grow profitably without taking undue risk within a range of over 20%, or so, some growing a little slower, others faster, for an extended period, as if they had grown over the past 20-25 years, ”Khemka said.

“Over the past six to nine months, they may not have kept pace with some of the real estate sectors and other industries and sub-sectors, but I would see this as an opportunity to be seized in this regard. moment, ”he said.

On the capital spending cycle, he said it’s one of those things you should believe when you see it happening. “Over the past 10+ years, everyone, including us, got it wrong. Like clockwork every year, there is more than enough reason to predict that corporate profit growth will accelerate from an average figure to around teens, and like clockwork it sits at around an average figure, “he said.

“I am confident that this time around we will see robust earnings growth. We saw near-mid-teens earnings growth last year in the fiscal year ended March 21. Several factors are at play … the consolidation is occurring in favor of listed companies far from the mom and pop sector and this finally materializes in stronger growth in turnover and net income of companies, in particular the largest organized players listed on the stock exchange. This can lead to even faster profit growth than the mid-teens we had last year and expectations right now are for this year at over 30%. “

Speaking of the consumer space, he said here that we should consider both consumer staples and discretionary durable and nondurable.

The nature of the Indian market also makes it very exciting compared to global markets. India is not sector-oriented like some other emerging markets, which are heavily oriented towards commodity companies, be it energy or metals. “India has very wealthy, diverse and entrepreneurship-oriented private companies that are present in sectors such as finance, IT, consumer, staples as well as health, chemicals and pharmacy, ”he said.

“We also have manufacturers. It would therefore be advantageous if there was a revival of investment spending. We have companies in the portfolio that would benefit from it. It’s a small sector in the investment universe, and it is well represented to that extent in our portfolio, but we don’t have a big macro appeal… therefore, we need to tackle this sector fully ” , Khemka said.

For the full discussion watch the video