Why You Should Sell Your Ferrari to Buy Startups and Smallcaps?

Date: 11 Jul, 2021

The question doesn’t sound so subtle, right? Well, in the webinar organised by PMS Bazaar on the 14th of May, Mr. Abhishek Agarwal, founder of Rockstud Capital breaks down the question to its core and shares his insights on how with the economy moving forward, playing a long term will aid in one’s wealth creation.

Impact of Covid-19 on the global economy

Covid-19 has impacted the economy of every nation out there. The overall global equity market was badly hit too. New money was printed by governments all around the globe to ensure more liquidity in order to lessen the effect of covid.

The pandemic forced the companies to get organised and active on how to manage their cost and supplies as another major setback was something everybody wanted to avoid.

Shortage of vaccines, medical supplies and localised restrictions have also led to the Indian equity market to underperform.

Weakening of the dollar index has also been seen due to the announcement of $2.3 trn by the Federal Reserve in April 2021.

The prices of commodities like Oil, LNG, Rice and Sugar surged to new heights because of stimulus spending and the weakening of the U.S Dollar.

 India as the next big economy

India is a $2.9 trn economy. With the advancement of technology and the effects of globalization, the Indian economy is growing and especially in this decade, people should look for a diversity of businesses to venture out.

Let’s take the example of the Chinese market where a ‘J’ curve appeared in 2008 when its per capita GDP crossed $2000 and the economy grew in a massive proportion.

A similar situation can occur with India as when our economy progresses, our consumption will increase and so will our spending power going forward.

From the financial inclusion point of view, our economy is moving from physical asset to digital asset. All thanks to the emerging startups, there is a change of habit that is being witnessed in the Indian household.

With the current perspective of the Indian economy, 3 years ahead, markets will actually trade close to 12 times the FY-24 numbers.

The vision has to be longer than a shorter tenure. Things might look expensive and markets may look volatile but when you have a buy and hold strategy, you will most probably be rewarded in the long term.

India’s small-cap and startup scenario shows huge promise

India’s market cap is $2.76 trn which is .94x the Indian GDP i.e., it almost mirrors the Indian GDP. India is the 3rd largest economy in the world that has almost 4700 companies that lie in the small-cap and micro-cap i.e., just below 1 billion dollars. This is where the real opportunity lies. Imagine even a 10% shift from the bottom micro-cap to a mid-cap can be lead to enormous value creation.

From Rockstud Capital’s point of view, we focus on the FACT(H) theme which includes Financial, Agriculture, Consumption, Technology & Healthcare sector. The total market cap of this sector is $1.8 trn which contributes to 66% of India’s market cap and 62% of India’s GDP.

Talking about startups, India is already a house of 50 ‘Unicorns’. A company that commands a market valuation of 1 billion dollars or 7500 crores can be considered a unicorn. A startup should be invested for at least 7 years to turn unicorn. A/c to recent reports India will house approximately a total of 100 unicorns by year 2030 but at the current rate at which the startup scene is exploding, it will most probably accomplish the target in the next 2–3 years itself.

Let’s look at the Indian startup ecosystem today. A total of 55000 startups are registered, out of which 40000 are active startups. As a matter of fact, the Indian startup sector was one of the fastest that recovered after the first covid wave and came back strong, attracting a lot of capital. The money is flowing in the ecosystem as something innovative is happening.

The ed-tech sector is very important and has seen astounding growth because of the digital framework which is the best way to reach tier-2 and tier-3 cities followed by the e-commerce sector because everything from food and groceries to medicines is available right at your doorstep.

What the future holds for us

Going forwards, the technology-enabled business would see a disproportionate share of investments with sectors like ed-tech, health-tech and electric vehicles to be the front runners.

The future of the Indian economy looks really promising but only the person who has the patience, the right investment strategy for the long term and a will to seize any opportunity that comes his way shall witness true wealth creation.

To watch the full webinar, click here: https://www.youtube.com/watch?v=aNe8E8twWio&t=2987s

To know more about Rockstud Capital, visit: https://www.rockstudcap.com/

Disclaimer — The article is made for informational purposes only and should not be regarded as an official opinion of any kind or a recommendation. It does not constitute an offer, solicitation or any invitation to public in general to invest in the stocks discussed. This article is confidential and privileged and is directed to and for the use of the addressee only. The recipient, if not the addressee, should not use this material if erroneously received, and access and use of this material in any manner by anyone other than the addressee is unauthorized. It shall not be photocopied, reproduced or distributed to others at any time. While reasonable endeavors have been made to present reliable data in the article, Rockstud Capital LLP does not guarantee the accuracy or completeness of the data in the article. Prospective readers are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. No part of this material may be duplicated in any form and/or redistributed without Rockstud Capital LLP’s prior written consent.

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