As investors look for fresh opportunities this Diwali and position their portfolios for Samvat 2083, Nilesh Shah, Founder of Envision Capital, is betting on a relatively lesser-known theme: music content companies and the monetisation opportunity emerging from paid audio streaming.
Speaking to CNBC-TV18 during the Muhurat trading session, Shah identified Saregama as an interesting investment opportunity, arguing that the consolidation of audio streaming platforms and their shift towards paid subscriptions could unlock significant operating leverage for music content companies.
“One of the spaces or categories that we find very interesting is on the music side,” Shah said, adding that while some of the listed companies have been around for decades, what has changed is the monetisation of their content.
Pointing to Spotify’s paid audio streaming subscriber base of 14-15 million, Shah said the platform sees this growing tenfold to 140-150 million over the long term.
I think there is massive operating leverage out there for some of these music content companies. I think that could be a very, very interesting opportunity, with the inflection coming in from consolidation on the platform sideSHAH SAID
On concerns around Saregama’s valuation, which is above 40 times earnings, Shah argued that premium valuations are justified when businesses deliver strong growth, expanding margins and cash flows.
“Spotting is one part of the game, but continuing to ride, I think, is even the more important part of the game,” he said.
CarTrade: OLX could power the next leg of growth
Apart from Saregama, Shah identified CarTrade as another opportunity, with its OLX business offering significant growth potential.
He described the core CarWale business as a steady compounder that generates cash flows, while attributing its recent single-digit revenue growth to a high base effect. He expects this growth to normalise.
The bigger opportunity, however, lies in OLX, which operates in the second-hand products market. Shah said the business has been turned around and put on a growth trajectory, with management guiding for growth of more than 30%.
If that gets delivered, I clearly believe that’s going to be the next leg or the next opportunity for CarTrade as a company and as a stockHE SAID
IT stocks: Tiger zinda hai, but growth remains a challenge
Turning to the IT sector, Shah said Indian IT services companies are unlikely to lose relevance amid the artificial intelligence (AI) transition, but their ability to deliver meaningful growth remains a concern.
Tiger toh zinda hai, but Tiger Dhurandhar nahi ban rahaSHAH SAID
Shah believes large-cap IT services companies will continue to find business, as they have through previous technology shifts, including Y2K, the internet, digital transformation and cloud computing. However, dollar-denominated growth is likely to remain in the low single digits.
“The problem is not survival. The problem essentially is growth,” he said.
He sees large-cap IT companies largely as index plays or trading opportunities rather than structural growth bets. Investors, he said, should watch out for mid-cap and small-cap companies focused disproportionately on AI implementation over the next few quarters.
HDFC Bank: New CEO’s roadmap key to a longer-term view
On HDFC Bank, Shah said valuations appear comfortable, but the lender’s size and increasing competition make meaningful growth challenging.
He believes investors should wait for greater clarity on the new chief executive’s strategy and growth roadmap before taking a more constructive long-term view.
“Maybe a quarter from now, when the new CEO has more to offer in terms of his thought process, philosophy and the roadmap for growth, I think that’s probably the time to take a more constructive long-term view,” he said.
What matters when picking growth stocks?
Shah said investors should focus on the size of the market opportunity, established product-market fit and unit economics, along with management’s ability to scale efficiently.
He also highlighted the importance of identifying businesses that can challenge established players and emerge as market leaders.
On whether high valuation multiples should deter investors, Shah reiterated that business performance matters more than the multiple itself.
“The problem is never valuation. The problem always is the business performance. As long as the business performance is super strong, it’s fine to continue to ride it. The day the business performance begins to falter, valuations become a liability, and that’s the time you have to probably go back and check if your investment thesis is working or not,” he said.
Envision Capital’s Nilesh Shah bets on lesser-known themes for Samvat 2083; here’s what he said