Easy money will end once market starts consolidating; get ready to pick and choose stocks : Hiren Ved

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In the next five years, one has to have a mix of good quality exposure to sectors which are either young today or they are companies from sectors which did not contribute to significant profitability in the last couple of years, says Hiren Ved, Co-Founder, CEO, Director, and CIO, Alchemy Capital Management.

You are going to be all in when it comes to the new age tech IPOs just because they are new age or consumer facing. Most of these companies say we are not going to be making profit for a long time but they are going to be focusing on growth. So, what does an Alchemy Capital, others or even retail investors look for?
At Alchemy Capital, we have a separate strategy, we have an AIF called the Alchemy Leaders of Tomorrow, where we are telling investors that look we will bet, we will decide and evaluate on some of these opportunities that we see in the new age businesses and we will pick and choose and we will buy them in that strategy. So you do not have to really worry about which ones you should bet on; leave that evaluation to us and we will buy the best opportunities that are available to us.

As far as retail investors are concerned, they should focus on mutual funds who are willing to take those kinds of bets and take help of professional advisors rather than trying to do it by themselves. If they believe that they have the ability to understand these businesses by themselves, fair enough, but I would certainly suggest that they should have a very long term view while investing in these businesses. That is true of any other business that you invest in but particularly with these kinds of businesses.

Also, one has to be mindful of the kind of valuations that you are willing to pay. Bracketing all these businesses into new age businesses is quite a challenge because even though it may be a new age or a digital business or a B2C business, every business is very different and the economics of those businesses will turn out to be very different. So either you play it as part of a strategy through a portfolio manager or through a mutual fund manager who understands this who may take bets on some of these and communicate this very clearly to you as an investor that they are going to take a bet on these businesses. And do that with a proper understanding and a long term view and try not to get sucked into the excitement of the IPOs and the pop that these companies will get during these IPOs because that could turn out to be quite dangerous in the short to medium term.

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What according to you is the sector that will see a big boom in the next 2-5 years?
I cannot name any one sector. We are bullish on real estate. I think the real estate sector is now fairly consolidated and after a long consolidation, it is likely to break out. The quality of players has changed. More importantly, high quality institutional money is willing to back the real estate sector. One of the big problems with the real estate sector was that they were not getting capital from the banking system and therefore they ended up borrowing either in the unofficial markets or from NBFCs at very high cost. The model was very different. All that has undergone a change.

There is now high quality private equity capital which is willing to back some of these players. The quality of capital has improved substantially and the end product is also reflecting that. We continue to be very bullish on real estate going into the future; housing, real estate will see a rebound. It is in fact already seeing a rebound.

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The breadth of the market is likely to improve and I do personally believe that many sectors which have lagged in profitability in the last couple of years are likely to incrementally contribute substantially to the improvement in profitability.

The leadership is not going to remain with the sectors which did well in the last 10 years. There will always be exceptions to the rule but those will be exceptions. In the next five years, one has to have a mix of good quality exposure to sectors which are either young today or they are companies from sectors which did not contribute to significant profitability in the last couple of years. It could be real estate, it could be capital goods, it could be commodities, it could be metals, it could be hotels, speciality chemicals and technology. We continue to be extremely bullish on technology companies. The breadth of opportunities is significantly big and now stock picking will really matter.

The easy money making which we saw in the last 18 months will certainly come to an end at some point in time as markets correct and consolidate and then picking and choosing companies will become extremely important. But having said that, I do not want to limit myself and say that this is the sector that you need to bet on, I see a huge breadth of opportunities going forward.