Diwali 2024: Marcellus Expert Krishnan VR Says ‘Skip IPOs,’ Focus on High-Quality Stocks for Samvat 2081

As Samvat 2081 approaches, Krishnan VR, head of Quantitative Research at Marcellus, suggests investors focus on stable, high-quality companies rather than jumping into the current rush of IPOs. He advises prioritising companies with clean financial records, a return on capital higher than costs, solid balance sheets, consistent profits, and fair valuations. Krishnan believes a steady, long-term investment approach, such as SIP (Systematic Investment Plan), is more effective in today’s market.

Investment Strategy for Samvat 2081

Krishnan emphasises the value of investing in strong, reputable companies with good financial health and long-term potential. He advises not to chase short-term gains but rather to stick with quality stocks across all market cap levels, which have lagged the market recently, making them appealing for medium to long-term investors.

Thoughts on the Current IPO Boom

Krishnan points out that IPOs usually increase in number during bull markets, but global trends show that IPOs aren’t always the best investments. He advises caution, especially with the high valuations we’re seeing, and Marcellus’s MeritorQ strategy reflects this view by avoiding new listings.

Sectors Likely to Perform Well This Festive Season

While Marcellus isn’t focused on specific sectors, Krishnan notes opportunities within private banking and financial services. Many companies in these sectors have solid management and strong fundamentals, offering growth potential for selective investors.

Midcaps and Smallcaps Outlook

Indian mid-cap and small-cap stocks have performed exceptionally well this year. However, Krishnan warns that for this growth to continue, company earnings need to rise at a similar rate. Rather than focusing on entire indices, he advises investors to pick specific companies with good growth potential in this broad sector.

Challenges in the Coming Year

Some obstacles lie ahead, including high valuations and slowdowns in earnings growth across certain areas. Foreign investor outflows have increased recently, though local mutual fund inflows help balance this. The recent drop in public sector stocks and specific themes like defence suggests there’s less enthusiasm for stocks with high valuations that lack solid fundamentals.

Impact of US Elections

While Marcellus doesn’t comment directly on the US elections, Krishnan notes that potential trade restrictions on China by the new US administration could benefit India’s IT and pharma industries, as the US is a significant market for these sectors.

Advice for New Investors

Krishnan’s main advice to new investors: stay calm during market fluctuations. Following a long-term strategy, such as SIPs, is particularly wise given current market conditions.