ETMarkets Smart Talk: Vikas Gupta of OmniScience Capital hands out 3-step guide to identifying capital multipliers

We have already seen 8% kind of cut on Sensex and Nifty in the first six months, is it profit booking, or the near-term trend has already changed compared to global markets?
Outflows is the primary reason why there is at all a fall in the Indian markets and that is about 8% to 10% but that you can’t label it as ‘correction’.

Now, compare that to the largest market in the world — US market which is upwards of about $20-30 trillion, and that has fallen by 20% which is defined as a bear market (20% downside from a recent high is termed as a bear market).

S&P 500 which in the US markets is also down by about 20%. Russell 2000 which represents the pure smallcaps is down by 24% and the Nasdaq Composite which is primarily technology-heavy companies is down by nearly 30%.

So, compared to that, Indian markets being down by 8% that is Sensex, Nifty of 10% is not much and midcaps are also down by let us say 13%, small caps by 16-17%.

Compared to the global markets, I would not say it is a really a big fall. We have, in fact, outperformed and primarily it is FIIs flows. Domestic flows are steady and so on and fundamentals are intact that is the other part.

How do you pick winners for investment or capital multipliers, which strategy do you follow?
We follow something called scientific investing which is our proprietary investment framework – the OmniInsight concept.

There is an insight or a philosophical idea behind all this scientific investing framework is that most people in equity markets chase alpha.

For most people who are chasing alpha — let us say 100 people are chasing alpha, for 95 people it is going to be that they will end up with the risks and not the returns.

ETMarkets Smart Talk: Dr Vikas Gupta explains how to build a smart portfolio with scientific investing

“We follow something called scientific investing which is our proprietary investment framework – the OmniInsight concept,” says Dr Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital.

The whole scientific investing framework is based on safeguarding the portfolio We focus on three things –

Capital Destroyers:
Focus on how will a company lose money for you as a shareholder? The first thing that will come to your mind is — too much debt. Capital destroyers are those companies that have very weak balance sheets or weak business operations.

So, we take out capital destroyers from companies in Inda or 1,500 companies in the US. That is our universe.

Capital Eroders:
The second step is to identify capital eroders. These are the companies that seem to be making profits but are paying high taxes as well. The return on capital is much lower than the cost of capital.

So, the longer you stay with such companies more you are losing as a shareholder.

Capital Imploders:

The third is what we call capital imploders. These are the darlings of the market. They are great companies, but they are not great stocks or great investments.

The company is great fundamentally, but the pricing is such that the valuations are such that the upside is not significant compared to the potential downside.

If nothing goes wrong for say 20 years then you will end up with a 12% return, but if anything goes wrong then the probability is very high. The stock price could go down by 50-60%.

So, investors should take out the imploders now.

What you are left with from the stock universe is capital multipliers. From this, you choose and look for what are the growth opportunities these set of companies have.

Some companies do not have so many growth opportunities they might be what we traditionally call as ‘value traps’ and you take them out as well.

Unless there is a very large growth opportunity you do not get into that company.

You assemble a portfolio, a small portfolio maybe three, four, five, or seven companies that are available and that is how you structure the portfolio with a number of growth factors. This is a scientific investing framework.

Do you think that the fundamentals will help Indian markets for the next six months as well or the second half of 2022?
We all know why the FIIs are pulling money. It is not that they have lost confidence in the Indian market, it is more about adjusting to the US Fed.

People (fund managers) are trying to adjust their portfolio allocation to the new discount rate. We feel that India will look very-very attractive in the emerging market (EMs) space after the recent selloff and depreciation in the rupee compared to the USD.

From the FII perspective, once the rupee stabilises after depreciation it will fetch more money to investors. If I put in $1 into India, it is going to give me many more rupees with which I can buy a cheap market that can grow in double digits.

We see some inflows from FIIs sometime in the second half of the year, don’t know when. When inflows happen market could go the other direction (upside).

Do you suggest investors to diversify geographically as well, in India as well as the US markets?
We have always advocated that there is no reason to have 100% of your equity portfolio in India. One should take exposure to developed countries and within developed I mean it is primarily the US.

Rather than complaining that foreign companies are taking all my consumer rupees, do not worry about that rather why do not you become an owner of those companies.

You have also launched a small case for retail investors recently so what is the kind of response that you are getting and what is the strategy there?
Yes, so we have several small cases there on the platform, but our flagship is what we call Omni Super Stocks which is diversified. The new terminology is Flexi cap, and not multi cap. It picks from large, mid-small caps, and Indian stocks and it is diversified across multiple growth factors.

How should one invest in US stocks – MF or direct equity exposure?
MFs was an easy route where you could just put in money into an international or global mutual fund, but now that avenue is closed and so you should do– what we again always recommend is that have direct exposure.

People might not be aware but there are a number of platforms. Our strategy is on stockal.com but there are a number of other platforms through which you can invest in global markets and the process is very simple.

The benefit of this is that if you are holding direct US stocks or some other global stocks then you are creating a dollar kitty. RBI allows you to hold dollars, every year you can remit 250000 dollars per person – that is a very substantial amount.

We are not saying that you invest that in one go but can look at building the corpus according to the risk profile.

What is your take on the rupee?
The rupee has fallen against the dollar right now, but against the pound and the Euro of course it has appreciated.

Against the dollar, the rupee is down by 6-7% but against the pound and Euro both of them we are up by 7% which is very crazy and that is very interesting as well.

We all are focused on USD INR. The rupee going up or down both have advantages and disadvantages.

Rupee depreciating helps us with exports, rupee appreciating makes the imports cheaper. I mean other imports we do not care so much, but it is the crude oil which you know it is an elastic demand right.

A weak rupee against the dollar is good for India but the strength of the economy and other trade is being shown by the appreciation against other hard currencies like the pound, yen, and Euro.

I would not worry about the rupee depreciating at all it is temporary phenomenon when FIIs are pulling money.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)