The Golden Thumb Rule: Buy-and-hold has evolved into buy-and-watch in today’s disruptive world, says Nimesh Chandan

In a world where disruption has become the new constant, the traditional mantra of "buy-and-hold" is no longer enough to create wealth.

According to Nimesh Chandan, CIO of Bajaj Finserv AMC, investors must now embrace a "buy-and-watch" approach—one that anticipates megatrends, aligns with long-term shifts in technology, consumption, energy, and healthcare, and stays agile in the face of change.

In this conversation with Kshitij Anand, Chandan explains why identifying and riding megatrends is the true Golden Thumb Rule for sustainable wealth creation in today’s markets. Edited Excerpts –

Kshitij Anand: Let us start off with the keyword that we had, that is the megatrend and equals to mega returns you could say that sometimes in long-term investing. But how do you define a megatrend and what criteria does you use to identify them? And what is the golden thumb rule there?

Nimesh Chandan: So, megatrends investing as a concept is about trying to anticipate and benefit from long-term changes that keep coming. So, change, as you know, is constant.

There was a time where we have heard our father or grandfather invest in certain IPOs of certain companies, hold them for a generation, so 20 years, 30 years and then the kids inherit that wealth by like the companies at very cheap valuations bought many-many years ago and have multi-bagger returns there.

But if you see in the last 20 years or so, we have seen so many disruptive changes come in the world. So, either it is technology change or some change in regulations, change in customer behaviour. So just investing and forgetting about it, so buy and hold many a times is getting challenged now that the initial reason you invested in something has actually not survived, so why are you still invested in that company?

So, the other way of looking at it is now instead of buy and hold, we have buy and watch, which is about anticipating megatrends that why not anticipate these changes which are coming and then be on the right side of those changes. So, buy and hold has become buy and watch where you establish that these are the long-term changes which will inevitably disrupt a lot of businesses, let us find businesses in the right side of these trends.

And they provide a good tailwind for businesses to grow their profits at a faster rate for a longer term. And as you know, many factors affect stock prices in the short term. But in the long term, the one important component that determines stock prices is the profit growth of a company.

If on the longer term the company is growing its profits, the stock prices will follow. So, megatrends investing is about anticipating these long-term changes which impact economies, businesses, and companies and then finding out which are the companies that have a potential to benefit from it and investing with them for a longer term.

Kshitij Anand: Let us also get your perspective as to why is it important for investors to align their portfolios with megatrends rather than short-term market cycles.

Now, why I say that is because at this point in time the year or the generation that we are in, believe in short-term things, that means quickly make a profit of, let us say, 10% or 20% and then just move on to the next stock or the next thing to watch out for.

Yes, we could say that the Gen Z investing is also something which is getting popular. But yes, as you rightly pointed out, that the big wealth gets only created once you buy and watch at the same time. Over to you on that.

Nimesh Chandan: So, what we have done with megatrends investing is actually take some of the traditional values of investing and use modern tools to actually benefit from those values.

So, in the short term, people are trying to trade on the next tick, where is the direction of the next tick of the stock price. In megatrends investing, you are trying to predict the next move in a business. Now, many a times, there is a lot of noise in the short term which can actually blur your decision making.

When you are chasing the right businesses, you cut through the noise, you cut through the biases, and you actually be like a true long-term investor where you benefit from the business doing well. So, in the short term, you are investing as if you are trading a piece of paper, whose value is determined by who will buy it next.

As a long-term investor, as a megatrends investor, you are actually a partner in a business and you want that that business does well over a longer term. There is too much noise and too many traders who try to benefit from the short term.

They try to fight each other. And because there are too many people doing that and because there is so much noise, typically the returns are average or at worst below average. Whereas in megatrends investing, it is like running farther rather than faster, where you are actually benefiting from a clear road where not many people are there.

Ultimately, value will come to those businesses which do well over a longer term and you try to benefit from there. It probably is more relaxing to the mind also rather than chasing short term moves.

Kshitij Anand: And now that we have talked about megatrends and could you also elaborate the top megatrends which are there right now and their expected long-term impact on the economy?

Nimesh Chandan: That is an excellent question. See, we compare megatrends with as being different from index investing. So, for example, index if you see it is always backward looking. Whatever has done well in the past for the past five years comes into the index.

Whatever has done worst for last four-five years, that will go out of the index. You saw a lot of IT stocks actually come after a good run up in the year 2000. A lot of infra companies which were doing badly from 2008 onwards, ultimately went out of the index in 2011. So, index is backward looking.

When investing in megatrends, we look forward, which means we look at areas like for example, AI, UPI payments, that is digitisation in financial services. We look at transformation in energy, in terms of renewables, in terms of the demand for new power sector. We look at electric vehicles as one of the good themes to bet on.

In a more broader sense, we are very bullish for India specific on the consumption space because we have crossed this critical threshold of $2,500 per capita income in 2023 and now we are seeing discretionary spend go up. We are extremely bullish on the healthcare space over a longer term in India because again, this is a space where India is like a pharmacy to the world.

We are producing value at a cheaper rate and we have many US FDA approved plants. We have a lot of patents filed, a lot of products in research. Even CDMO, like contract drug development, that is where India is actually gaining market share, benefiting from technology changes as well as regulatory changes in these spaces.

And again, on a more broader sense, we are bullish on some of the manufacturing side in India. So, these are the themes that we look for. Technology-wise in AI, UPI, otherwise consumption and healthcare, in demographics and innovation and we are looking at EVs, smart cities, manufacturing as megatrends in India.

Kshitij Anand: So, I am sure that you might not be able to give out the stocks, but then again if you could also highlight just for the viewers to understand as to this is the space that they want to or they should be looking at, so which sectors are best positioned to benefit from these megatrends, let us say for the next decade or so.

Nimesh Chandan: So, let me split up into which are the most bullish sectors within these themes. So, on the consumption side, consumer discretionary and the other is quick commerce. These are the sectors that we are most bullish about. Consumer discretionary is at the cusp of a takeoff as discretionary spending of households is increasing.

We will see everything from say white goods to real estate benefiting from this increase in incomes. On the other side, the daily consumption patterns of people are changing towards more quick commerce. So, earlier it was going to shopping with the family in the shopping malls or so, now it is ordering in. So, these companies are growing at about 50-60%.

There are few companies listed, but there will be more listed on that and these are platforms which have a lot of value. Within healthcare, we are most bullish about domestic pharma companies right now, hospitals, and we are bullish on the contract research and manufacturing companies. AI and digitisation and EVs, these are our bullish trends, but underlying that is a megatrend in the power sector.

We are suddenly seeing that world is actually realising that they are short of power because all these things are hugely power intensive. So, power equipment suppliers is again area that we are extremely bullish on. And within then other areas like smart cities, we are bullish on water. There are few companies that are listed around that, so we are bullish on those.

In digitisation and financialization, some of the banks and capital market companies are looking very attractive for a longer-term growth. So, I do not know, maybe I have covered a whole bunch of sectors, but these are the sectors which are diversified megatrends fund would want to bet on.

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