What to do if you are stuck with new-age stocks in your portfolio?

"The simplistic answer will be if you are stuck with this investment, please try to keep it in terms of your portfolio weight less than let us say 2%. While you can enjoy the upside that can potentially hit that company, you may not lose much in your portfolio earnings, if it is in that 2% kind of range," says Mahantesh Sabarad, independent market expert, in interaction with Tamanna Inamdar. Edited excerpts:

Every day you have an agency downgrading not just global growth expectations but also in tandem Indian growth expectations. The word global recession or recession in various western countries has now become standard but India seems to be marching to its own tune as far as the equity markets are concerned. Is this a disconnect with economic reality or is this now recognising that we are going to be better off compared to the rest?
I think the way to answer is that classically look at what is the PE ratio of the market today, where it is headed and what is the earnings potential that the market is delivering right now. Let us look at the Nifty PE ratio, it is somewhere around 21-22 times and that is compared to the COVID level. The levels of 30-40 are quite normal. In fact, this PE level is down to I would say something like 2015-2016 kind of levels which means the PE levels have now normalised.

On the earnings side, we have been now on a recovery path post-pandemic in terms of earnings recovery and the biggest earnings jump that you see is in the banks. Now, Indian markets as you are aware are heavily bank-dependent and heavily bank-weighted and therefore they seem to be doing relatively better than other markets despite the fact that you have what you mentioned about global rating agencies to global forecasters downgrading the global GDP along with it India GDP as well. So, this disconnect is probably because of the fact that the banking sector has been doing substantially better and that disconnect will persist for some more time.


Last two to three years have not been great in the Indian markets and you see that disparity even today. Nifty is around 18,500 but individual portfolios are not necessarily reflecting that. Broader markets are not chugging along at the same pace. And what do you make of that widening gap?
The reason why portfolios are not performing of individual investors to even some of the mutual funds themselves is borne by the fact that in the market, post IPO boom, particularly on the new-tech or new-age companies side is that there is a disconnect that has started to coming in. These new IPOs that came in were typically very large-sized IPOs. These large-sized IPOs meant that professional investors needed to have that as part of their portfolio as an object of diversification. And that meant that most of the performance of these portfolios has been down relative to the market. Ideally speaking, if one would have weighted the banks in the portfolio heavily they would have done better but that was not what most portfolios did because you had these new-age IPOs coming in and most of them have turned out to be big disappointments one year down the line to two years down the line.

I am saying you are being kind by using the word disappointments…
See, it is not a phenomenon that we have seen uniquely this time around. IPOs underperforming has been a phenomenon in this market. Go back to the days of Reliance Power when the 2008 world recession hit. It was among the disappointing IPOs at that point in time as well. It was a successful IPO, but later on, it turned out to be a big disappointment. The point that I was making was that most of these IPOs are heavily weighted in terms of their size, and that is what the disappointment is about.

And what do you do if you are stuck in this as an investor?
The simplistic answer will be if you are stuck with this investment, please try to keep it in terms of your portfolio weight less than let us say 2%. While you can enjoy the upside that can potentially hit that company, you may not lose much in your portfolio earnings, if it is in that 2% kind of range.

But if you were to really name the tech companies, some of them that are actually taking exposure to an underlying real economy sector, I would name Nykaa just as an example. Nykaa is into the consumer space which is the real economy space. They have developed their own tech stack to really sell the products. Paytm is actually in the real economy space of banking. It is essentially transactions but they have used the tech power to make it a new-age sector. That is why we call them new-age sectors while the underlying business play is on the real economy that they bank upon. The only problem with some of these companies is that the regulation levels in some of these companies and some of these sectors are right now immature. The maturity of these regulations is yet to come and I believe that as the regulations grow over a period of time they will necessarily tighten these sectors. Therefore, the scope for growth for most of these companies seems a little limited to me. When regulations tighten, some of these companies will tend to consolidate in a grouping, growing big by themselves and can give you great returns. So that is why you should be in that 2% portfolio weight kind of strategy that can allow you to take the upside when that comes in.