For Kanpur-based contrarian investor Ekansh Mittal, last four-five years were quite fruitful, with two pharma investments in 2017 and 2018, an auto ancillary investment in 2019, an online US retailing stock (2017-2021 holding period) and a building products stock turning multibaggers.
The value investor says he is not worried about the ongoing market consolidation, as investing, after all, is about bottom-up stock picking. Mittal has picked his potential multibaggers.
His investing mantra: hunt for growth at reasonable price.
Mittal, known for picking multibaggers at early stages, recalls November as the month he opened his demat account in 2008. He made it to Forbes IndiaтАЩs 2015 edition of Wealth Wizards at the age of 27.
Cera Sanitaryware, VST Tillers Tractors, Wim Plast, Amara Raja Batteries, Symphony and Can Fin Homes were among stocks that reportedly delivered him multibagger returns. A Sebi registered research analyst, Mittal, 34, talks less about individual stocks now.
Nonetheless, one space that looks extremely attractive to him, said Mittal, is pharma APIs (active pharma ingredients). He said he recently invested in one of the listed rice-exporting stocks. Midcap and smallcap NBFCs in the gold loan segment is the third space where he finds value and hopes to find potential multibaggers.
Potential multibaggers
Mittal said API makers had good times around the Covid pandemic, but since 2021 shares of such drug makers were under pressure. There were in fact stocks, which were down 50-60 per cent over 2021 levels, he recalled.
Mittal said he found value in some of the API stocks.
The Kanpur-based investor said he also recently bought shares of a basmati rice-exporter, as the government eventually did not ban basmati rice exports. He said there are only a few listed companies in this segment and, fundamentally, they were all doing well.
“We also find value in some of the mid and smallcap NBFCs. The last 3-4 years were really bad for these NBFCs, thanks to IIFL crisis, demonetisation and later Covid crisis. The credit cost for NBFCs should go down. Many of these companies are trading almost at book value; have never diluted equity and are still doing well. ┬аHere I am talking about gold loans companies; although some of them have also diversified in other segments including microfinance, commercial vehicle finance and housing finance,” Mittal told Business Today.┬а
These are all contrarian bets, he clarified. Why did chemicals sector delivered so many multibaggers, he asked.
It is because valuations for the sector were reasonable till 2014 and the companies were treated as commodity stocks, and ┬аnot ‘specialty chemicals’, he said.
“Of course, chemicals companies did put up facilities and tried to lower their dependence on China. Later China started addressing environmental issues and customer started looking for secondary sources. That’s how chemicals sector did so well. It’s all cyclical. Things that might look very bad today, may do very well tomorrow,” he said.┬а
Love for cycles
From 2008 to 2022, Mittal said his investing style enhanced. In the past, Mittal was not interested much in deeply cyclical businesses such as commodities, metals and cement. But over a period of time, he realised that a lot of businesses are moderately or deeply cyclical in nature.┬а
“Sometimes these metals, paper and cement stocks, which are deeply cyclical sectors, can deliver very decent returns in a span of 2-3 years. This is ┬аespecially true if you are able to buy them when the cycle is down, when the companies are doing bad and when nobody wants to touch them,” Mittal said adding that one doesn’t need to hold them for a really long period.
“You could get decent ratings in a 2-3 year cycle,” he said.
Mittal said he looks at cyclical stocks as good opportunities from a medium-term perspective.
Cyclicality is something that has helped Mittal improve his thought process. It, he said, has enhance his contrarian thinking.
“There are not just deeply cyclical sectors, but also moderately ones. Auto ancillary is an example. Until 2018, they were doing quite good, but there was a major contraction in demand in 2019 and 2020 and a lot of stocks fell 50-60 per cent. We took a call and those companies have done quite well for us,” Mittal said.
What is long-term: 3, 5 or 10 years?
Mittal said it is not about years, but whether the companies that one is invested in are performing consistently over the duration. One needs to keep evaluating them, determine how the management’s execution has been, keep an eye on future plans and the ever-changing sector’s outlook. Valuations too plays a role as, Mittal said. He noted that many a time a stock moves up far ahead of fundamentals and even if the company is reporting growth, shares fail to reward investors.
Mittal said his longest holding is a stock called Carysil (erstwhile Acrysil), which he bought in 2010. He partially booked profits, but still owns the stock, he said.┬а
Mittal’s father was active in stock investing since 1980s. He says he had several examples of a stock delivering up to 100 times early at very early age, which made him understand the true potential of compounding. He founded Katalyst Wealth in 2011.
