My 80% allocation would be to small- and mid-cap stocks because that’s where you make big money." This powerful statement comes from Mr Vikas Khamani, founder of Carnelian Asset Managers, during an insightful podcast hosted by Shagun Gautam on Indmoney's "The Networth Show."
Vikas Khamani's journey into the world of investing began with a humbling lesson during the Harshad Mehta scam. Like many young investors, he was eager for quick wealth, drawn to the rapid gains seen in IPOs during a bull market. However, the subsequent market crash taught him the critical importance of knowledge and risk management, especially when it involved his father's hard-earned money. This experience instilled in him a deep commitment to learning before acting.
India's Growth Story: The Convincing Factors
Khamani is highly optimistic about India's current wealth-creation cycle, citing several key drivers:
- Strong Foundation: Over the past decade, India has implemented significant economic, digital, and infrastructure reforms. The GST, for instance, has streamlined the economy, reduced the parallel economy, and increased tax collection.
- Mindset Shift: There's a palpable change from an incremental to an exponential mindset across all levels – government, entrepreneurs, and citizens. Startups are thinking globally and aiming big.
- Indigenous Innovation: India is increasingly developing its own solutions, rather than solely relying on Western models. Examples like UPI and the rapid response during COVID-19 highlight this self-reliance.
- Geopolitical Centrality: India is no longer on the sidelines but is actively driving global agendas, reflecting increased national confidence.
- Demographic Advantage: A young population provides a significant tailwind for growth for at least the next 25 years.
These factors, combined, suggest that India could become a $29–30 trillion economy by 2047, even with a conservative 6–7% growth rate.
Sectors Poised for Growth
For investors looking to benefit, Khamani identifies five broad buckets where growth is expected to be widespread:
- Manufacturing: Projected to grow significantly, potentially quadrupling from $500 billion to $2 trillion in the next decade.
- Banking and Financial Services: A natural beneficiary of a growing economy.
- Consumer: Rising per-capita income will fuel increased spending, leading to premiumization and new product categories.
- Services (beyond IT): Sectors like tourism, healthcare, and education are set for expansion.
- Infrastructure: Rapid development in roads, railways, ports, airports, and metros across the country.
Identifying the Strongest Players
While identifying sectors is a start, Khamani emphasises that "real money is not made by identifying just the segments. Real money is made by identifying the right company and the right management." He outlines a clear approach:
- Business Model Analysis: Understand the strengths, defensibility, and risks of the business model.
- Management Quality: Assess three crucial aspects:
- Competence: Do they have the skills to run the business effectively?
- Integrity: Can they be trusted with shareholder money?
- Drive: Do they have the ambition and energy to grow the company?
For retail investors without direct access to management, Khamani suggests utilising publicly available resources like conference call transcripts, interviews, and company reports. However, he cautions that this requires significant dedication and is not a part-time endeavour. For those who cannot commit the time, professional fund managers are a viable alternative.
Managing Risk and Concentration
Khamani categorises investment risks into three types:
- Type A (Permanent Loss of Capital): This is the most critical to avoid, often stemming from backing poor management or businesses vulnerable to disruption.
- Type B (Market-to-Market Short-Term Corrections): These are temporary and unpredictable. For long-term investors, volatility can even present buying opportunities.
- Type C (Opportunity Loss): Missing out on better returns due to lack of knowledge or biases.
Regarding his personal strategy of allocating 98% to equities, with 80% in small- and mid-caps, Khamani is comfortable with this concentration. He believes in the Indian market's long-term potential and sees small and mid-caps as the primary source of multi-bagger returns, though he acknowledges that large caps can also deliver significant gains.
Advice for Beginner Investors
For those new to the stock market, Khamani offers practical advice:
- Read extensively: Knowledge is power. Study businesses and build your own conviction rather than relying on others.
- Save and Invest Systematically: Young individuals should aim to save 20-30% of their income and invest it through Systematic Investment Plans (SIPs) in mutual funds to harness compounding.
- Choose Flexi-Cap Funds: For beginners, flexi-cap funds offer a diversified approach. More cautious investors might consider balanced advantage funds or other hybrid options. When selecting funds, look at historical track records and assess the fund managers' competence, integrity, and drive.
The Ultimate Takeaway
Khamani's concluding message is one of belief and continuous learning: "Start with belief — belief in yourself and your country. Bet big when you believe and learn. Money is only one part; learning and growth are equally important. Compound your learning and your wealth, and enjoy life."
Disclaimer: The content is meant for education and general information purposes only. Past performance is not indicative of future returns. Mutual Funds are non-exchange traded products, and INDstocks is merely acting as a mutual fund distributor. All disputes with respect to distribution activity, would not have access to the exchange investor redressal forum or arbitration mechanism. Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing. INDstocks Private Limited (formerly known as INDmoney Private Limited) 616, Level 6, Suncity Success Tower, Sector 65, Gurugram, 122005, SEBI Stock Broking Registration No: INZ000305337, Trading and Clearing Member of NSE (90267, M70042) and BSE, BSE StarMF (6779), AMFI Registration No: ARN-254564, SEBI Depository Participant Reg. No. IN-DP-690-2022, Depository Participant ID: CDSL 12095500, Research Analyst Registration No. INH000018948 BSE RA Enlistment No. 6428.