How to identify & invest in early-stage companies? Sunil Singhania offers a masterclass

Promoters, sector and the size of opportunity are three factors to look for when investing in early stage companies, according to Sunil Singhania, Founder, Abakkus Asset Management.

Speaking at AIF and PMS Conclave 1.0 Summit, Singhania said promoters of budding companies need to be passionate about the business as they don't necessarily have the wherewithal in the early stages.

"Secondly, investors should see whether the early stage companies they like are operating in sectors that have scalability and the opportunity to make big profits. There is limited potential for companies in small sectors, even if the promoters are top notch," Sighania said.

"Early stage companies should also have it in them to grow faster than the established companies or they should be in a business that no one else is doing, which is disruptive," he said.

Singhania maintained that market perception also plays a crucial role when it comes to identifying early stage companies as stocks turn multibaggers when profitability increases alongside perception.
Investors need to have visibility of high returns when investing in early stage companies, Singhania said, adding that India offers a huge potential to invest in such companies.

"In a growing and diverse economy like India, there are many entrepreneurs propping up. The opportunity to invest in such small and midcaps is massive."

On the market outlook, the founder said India equities valuation is currently not too cheap and not too expensive either.

"The market has become very expensive towards the end of 2021, but has seen corrections since then. In the same period, the corporate earnings have grown. Currently, Indian markets are currently trading at a PE of 18x FY24 earnings and 16x FY25, which is the 10 year average," he said.

"Overall, the next year returns can be decent from equities. In the short term, the second half of CY23 would be much better, compared with the performance of the last 18 months," he added.

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