Produced by: Tarun Mishra Designed by: Mohsin Shaikh
In an interview with Business Today, the founder and managing partner at Stellar Wealth Partners India Fund, Gautam Baid, emphasised the significance of understanding market cycles and liquidity dynamics, especially when it comes to small-cap and mid-cap investments. He stressed that having a supportive level of liquidity is critical for ensuring successful investments in these market segments
According to Gautam Baid, industries which are associated with renewable energy are a highly promising sector. He cited global demand trends as a driving factor for this recommendation. "Take the example of transformers industry. Globally, especially in Europe and US there is a big power transformer shortage. And there are a few select pure play listed Indian companies which cater to this particular demand from the west," said Baid
Baid offered valuable advice to investors, particularly for those who are new to building a portfolio. He underscored the importance of well-thought-out asset allocation, with a particular emphasis on a diversified mix of equities, fixed income instruments, and gold. Baid said, "I think we should also pay a lot of emphasis to asset allocation in general. And today, because of high interest rates being offered across the world, after a very long time, fixed income has become a very viable alternative to equity."
Drawing on his expertise, Gautam cautioned against investing in public sector stocks. He highlighted the political and policy risks that are often associated with these stocks and suggested that long-term wealth creation is more sustainable when focusing on quality private sector counterparts
Gautam Baid also provided insights on market valuation, where he warned against investing in sectors characterised by overvaluation, negative operating cash flows, and high valuations. Baid said, "I think bubbles are being created in those sectors which are having negative operating cash flow and very high valuations."
Gautam Baid’s predictions regarding market dynamics included the expectation that large-cap stocks might outperform their small and mid-cap counterparts in the short term. He urged investors to target companies with robust earnings growth and solid fundamental metrics. "I think right now there is value in large caps because right now the nifty is trading below its long-term average. It's trading at less than 21 times now one year forward. And there is value in large caps after the sharp run of small cap and mid-cap stocks in the last 6-7 months."
Gautam Baid discussed the three critical factors for generating wealth from stocks, emphasising the importance of high return on capital employed, growth prospects, and the durability of a company's competitive moat
Drawing from his extensive knowledge of financial markets, Gautam Baid provided insights into how bear markets typically unfold. Baid said, "Let me describe how a bear market actually feels like. In the beginning you have stocks of questionable promoters, shady promoters, bad corporate governance. Those crash in the beginning. After that you have a crash in cyclical stocks and commodity stocks. Then you get a crash in good quality small cap stocks. After that, you get a crash in good quality mid-cap stocks. And finally, you get a crash in the large-cap or blue-chip stocks like Titan, HDFC Bank, Bajaj Finance."
Gautam Baid also explained the differences between foreign institutional investors (FIIs) and domestic investors, highlighting the factors that influence their investment decisions. He mentioned that FIIs are drawn to markets offering higher fixed-income returns in USD and speculated on their possible return to the Indian market when the Federal Reserve began reducing interest rates
As a seasoned expert, Gautam offered strategies for investors to leverage foreign institutional investments. He recommended focusing on quality businesses in sectors of interest to FIIs, such as IT, consumer goods, and financials, which could lead to earnings growth and potentially higher valuation premiums