Market Views from the House of Aurum Capital – Special 5th Year Anniversary Newsletter

Aurum Capital today completes 5 years of providing Research services in the Indian equity market. We thank our subscribers and well-wishers for this. It’s been a great journey of learning for us. Driven by passion, a focused approach towards value investing, an open mind towards cyclicals, sector knowledge, and behavioral finance, we continue to guide investors to the best of our ability with ethics, honesty and integrity.
Our goal is to contribute in some small ways towards our clients’ financial freedom and to identify the stock ideas that deliver returns without taking undue risks. It gives us immense pleasure when we are in some small ways able to contribute towards our clients achieving their life goals.

Our Market Views

The markets have gone up quite a bit. And valuations in most pockets are not favorable. There is tremendous greed on the streets. Few indicators we track are showing euphoria. The likes of IPO valuations, listing gains, the valuations in SME stocks and valuations of the “current hot” sectors are amongst them. We believe investors should avoid FOMO (Fear of missing out) and this is a great time to calibrate and remove the mistakes.
The bright side is that we continue to remain positive on the Indian economy. We believe that it will continue do well. But we also have to acknowledge that most of it is already factored in many pockets and sectors and stocks. We are positive on the long term prospects of equity investing in the Indian markets. But during current times one should be very careful. Avoid stories, avoid extreme over-valuation, avoid priced-to-perfection sectors/stocks and most importantly avoid crap. We are seeing penny stocks being bid-up without any change in fundamentals. That is pure speculation. When that increases one should be cautious. We don’t know till when this will last, but we are sure this bubble will be pricked. The key is to stay invested in sectors/stocks where one has a longer-term view, at the same time managing risk based on valuations and risk-reward ratio of individual stocks/sectors and managing our behavior. We believe this is where we have an edge. And we keep guiding our customers towards these aspects of behavior.
We once again, re-iterate that we are not negative on the markets from a long-term perspective. It’s important to own good stocks where there is still valuation comfort and which have better prospects over the next few years too.

Views on some of the key sectors that are under coverage:

Capital Goods/Manufacturing/Industrials
This has been a very rewarding sector for us. We have already taken few exits. There is over-valuation in certain pockets, whereas some pockets still have a case for holding on for better returns. We will be wary of fresh investments in this sector. This sector may continue to do well and prices are factoring this in many cases.

Banking and Finance
We believe this sector will do well for some time. We have investments in this sector. And we believe there is scope for further upside as cycle is playing out well. For most, NPAs are trending down, and credit offtake is expected to be in double digits. NIMs could be stable or slightly down.

Cement
We believe FY24 will be better than FY23. Valuations are in favor in many pockets, especially in the mid and small cement companies. We believe there is upside.

Auto/Auto Ancillaries
We continue to stay positive on this sector and believe there is a case for better times in this sector.

Paper and Paper Products
This sector has had a good time. There has been some correction off late, but Q1 results have been above our expectations in most cases. We believe Q2 might be a bit challenging and things will start improving from Q3 due to demand increase due to NEP. We have taken some exits and some we will continue to hold on. Our focus is more on W&P side. Packaging we think can turnaround soon too. Kraft paper may continue to struggle.

Real Estate
This sector should do well for some time. There is a clear shift from unorganized to organized in this sector. Companies having strong brands will continue to do well. We believe a few stocks offer value even at current levels and we plan to stay invested in them.

Infra
We expect this sector to continue to do well. There is tremendous focus by the government on infra. Valuations leave room for further upside in many companies.

Power
We think this sector will do well. Though valuations have gone up in many, there could be some opportunities still available.

Sugar
We are constructive on this sector. We still see opportunities in this sector. And intend to stay invested in the stocks under our coverage.

Chemicals/Agrochem/API/Pharma
We think there is a case for contrarian investing in this sector. This according to us is a short-term-headwinds-long-term-tailwinds sector. We are finding opportunities in these sectors. But one has to be extremely stock-specific and have patience and be ready for drawdowns.

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