How to spot multibaggers on Dalal Street? Market veteran shares tips

Spotting a multibagger in the equity market is one of the toughest tasks for any investor. However, following the principles of experienced market veterans may help you to spot your lucky stock. Sunil Nyati, Managing Director, Swastika Investmart, who has over 30 years of experience in the investing world, is one of them. In recent times, stocks like Tata Elxsi and BSE are some of the stocks which have delivered multibagger returns to him. In an interaction with Business Today, he shared his views on how to spot big gainers on Dalal Street and lessons investors should learn from his over 30 years of experience. Edited excerpts:

Business Today (BT): Which type of stocks have you seen turning multibaggers over the past 30 years?

Sunil Nyati: In India, companies having quality management, ability to scale without consuming too much capital and are a part of an underpenetrated industry having a huge runway of growth have turned multibaggers over the past 30 years. The ability to generate free cash flows, competitive advantages, corporate governance and management integrity, management’s treatment of minority shareholders, and judicious capital allocation are some of the qualities that an investor should check before picking a stock on Dalal Street for the long term.

BT: What lessons have you learned from the market during this period? What kind of habits should an investor opt for or avoid to create wealth in the long run?

Sunil Nyati: The biggest learning for me is to never time the market because the market is the smartest among all. If you have conviction in a particular theme or stock then you should have patience. Another lesson is that bad management will always remain bad and they seldom change. In short, quality of management is paramount in the Indian context. Having burnt hands in companies like YES Bank, DHFL, ADAG Group, among others, I have realised that poor quality management can destroy even the best of the best businesses.

Secondly, it is very difficult to earn index-beating returns in cyclical and commodity businesses. Further, in the long term, only companies having a moat or competitive advantages earn returns above their cost of capital. Some of the habits that investors should incorporate are to be patient, control their emotions like fear and greed, and understand the company’s business before investing. Habits like catching a falling knife, timing the market, and too much tracking of share prices are some of the things that should be avoided to create wealth in the long term.

BT: How do you see the benchmark equity index BSE Sensex after over 7,000 points rally from June lows?

Sunil Nyati: The year 2022 belongs to volatility. However, things have turned bullish for the Indian market. We should not call the current up-move a bear market rally because Indian equity market benchmark indices Nifty and Sensex bounced back before entering a bear market which means they reversed before a 20 per cent fall from highs. The up-move is likely to continue but the volatility will be part of the game as the market will negotiate between growth and inflation.

BT: How has leadership changed in the domestic economy and which sectors are looking attractive at present?

Sunil Nyati: The leadership has changed to a domestic economy facing sectors like capital goods, infrastructure, financials, auto, etc from IT and metal sectors where we believe leadership will remain intact with the domestic economy facing sector. However some value buying can be seen in IT and chemical names.

BT: Which stocks will benefit once FIIs resume their buying in Indian markets?

Sunil Nyati: There are signs that FIIs are coming back to the Indian market and there is some kind of FOMO factor among them. However, there could be some volatility in terms of FIIs' flows in the near term but we believe it will be stabilised in the next couple of months. HDFC Twins and the insurance pack are looking lucrative amid the ongoing correction. These stocks will perform well once the FII buying resumes.

BT: What are your key takeaways from the ongoing result season so far?

Sunil Nyati: Banks and NBFCs have been the frontrunners from the profitability and growth point of view. The IT sector has witnessed good growth along with near-term positive commentary. However, the margin pressures and attrition issues are expected to continue. Commodity stocks are seeing high inflationary pressure and the FMCG sector has seen good volume growth but with slight pressure in terms of margins. It seems that the worst is over for the pharma sector.

BT: How do you see big names like Reliance Industries, TCS, or Infosys post Q1 results? What should be the right pecking order in terms of attractiveness?

Sunil Nyati: Reliance Industries posted a good set of results, however, expectations were elevated due to the high GRM margin. The golden period in terms of GRM margins has gone but its other verticals are doing very well. The IT sector has witnessed good growth along with near-term positive commentary. The margin pressures and attrition issues are expected to continue but Infosys managed to outperform in a tough time. Reliance, Infosys, and then TCS will be our pecking order in terms of attractiveness.  

BT: What is your advice to investors who are sitting on negative returns?

Sunil Nyati: We have seen a decent recovery in the market and I believe it is a good time to sell your mistakes and move to quality stocks. If you are holding a quality stock with a strong fundamental outlook but it is giving negative due to market volatility then you should have patience and hold it because it may automatically do well once there will be sectoral rotation in the market.

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