CNBC-TV18’s Investment Guide is a weekly classroom series that helps with investing guidelines, the rules to follow, and the filters to apply. In this episode, Sunil Singhania, founder of Abakkus Asset Management, gives a step-by-step guide on how to invest in midcap companies.

According to Singhania, the concepts of value and growth are more often than not misunderstood.

“I would presume that growth means companies and sectors, which are growing much faster than the economic growth; companies and sectors, which are growing at 20-30%. Unfortunately in India, growth stocks are so called because of the sector they operate in. so, FMCG companies, IT companies, pharma companies are typically referred to as growth stocks even if they are growing maybe in-line with the economic growth or even lesser some times. And companies which are not in these sectors, even if they are growing faster are considered to be value. So, this concept of value and growth itself is not properly understood,” he said.

He believes that buying early is advantageous as stocks are less researched and entry is cheap.

“Buying early is more advantageous if you go right because the stocks are not discovered, there is not too much research, there is not too much of a following and therefore you are able to buy it at a price, which is significantly lower than their fair value. I think that is what investing is all about. So, you would want to invest in a company where the future cash flows discounted by way of interest to the current value, you would pay less than that,” he said.

According to Singhania, one of the big themes for the next 12-18 months is companies with ongoing capex.

“The themes which we are looking at right now, one is obviously we are all in this mode of capital growth, capex, economy coming back to track in terms of faster growth, the government push. Therefore, I think what we are looking at is companies which are engaged in sectors which will benefit out of it and who are already in the midst of doing capex. Once the capex comes on, a lot of these companies will suddenly have a sales growth and profit growth which will be much higher than what they have reported,” he said.

He also believes that digital and beneficiaries of Make In India, production-linked incentive (PLI), China Plus One are some of the other themes that are emerging.

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(Edited by : Bivekananda Biswas)