“The 3Cs, namely, capex, credit growth, and consumption (more so discretionary, upper end and luxury) are themes which must find a way to get into the portfolio of investors,” says Devang Mehta, Director – Equity Advisory, Spark Capital Private Wealth Management.
In an interview with ETMarkets, Mehta said: “4Fs – Financialisation, Formalisation, Fiscal expenditure by the government & Farm income growth are the themes which will play out in an economic upturn and select sector and companies who are part of this theme will show robust growth and profitability,” Edited excerpts:
The festive season has begun, and we are seeing signs of stabalisation as volatility has reduced. How are you looking at markets?
India’s festive season usually runs for several weeks until Diwali with millions of Indians binging on food, gifts, and home improvements.
Consumer confidence reached a 4-year high in September, while demand for bank loans is near a 12-year high. Consumers are spending money on cars, smartphones, and TVs.
The continuing fiscal support directed toward rural areas ahead of polls could further boost consumption. Demand for residential real estate, especially for premium projects, is good in key metro cities.
A few micro markets (East and North Bangalore) are seeing unprecedented demand as 30-40% of the project inventory is getting sold in the soft launch phase itself.
Markets are sensing that the Indian internals are in good shape, it’s only the global and geopolitical cues at play, which is inducing a lot of volatility in the proceedings.
Some correction for the overheated markets was essential for overall health and it seems many investors have taken advantage of this.
The US Federal Reserve outlook helped to calm the nerves of some investors. At the same time, we are seeing a rise in the US Yields and FII exodus. How will the scenario play out for the rest of FY24?
The US Fed has been in a Quantitative Tightening mode and has shrunk the balance sheet size by about $1 tn over the last 1 year, which is pushing the bond yields higher.
The street is expecting a rate cut to start from June 24 and a soft landing. We differ from the street’s view and believe that the Fed has to blink a bit early.
The recent correction is definitely a rub-off of global events. Our markets will track global cues and the inflation–interest rate narrative will be closely observed during the first half of Samvat 2080.
All global asset allocators have India on the top of their spreadsheets. However, once the dust settles around the global and geopolitical cues, India is likely to receive robust flows from FPIs.
We are approaching Diwali – how do you sum up markets from the last Samvat? Any key learnings that investors should take note off?
The most important takeaway is how domestic investors be it retail or HNIs have kept the faith and realised the power of Indian equities.
Even during volatile times and we had enough of it, the liquidity via SIPs or through direct equity investments acted as a strong cushion and provided a floor for indices and stocks.
Also when I went in the flashback mode to the start of last Samvat, we were staring at an almost certain US recession, volatile geopolitical equations, FPI selling big time in phases, and mixed signals from China, but still when you look at our markets, we have done reasonably well.
I think one has to realise that ebbs and corrections will be part of every structural bull run and investor’s lifecycle. To make money in the markets, you have to stay the course. Frequent trading and churning should be avoided.
Investing is also called “Going Long”, therefore, one has to stay invested for the long term.
What are your expectations from markets in Samvat 2080? Any key targets for both Nifty and Sensex that you have marked?
I generally tend to refrain from giving index targets. There is a distinct possibility that markets might provide returns in line with earnings growth.
For the next two to three years earnings growth for Nifty/Sensex can be in the mid-teens. For an investor, it is very important to follow his portfolio companies and how the earnings and cash flows of these entities enable him to create long term wealth creation or otherwise.
However, given the events for next Samvat 2080 including few state elections, the very important General Elections, one can expect volatility and bit of lumpy returns rather than a smooth ride.
Which sectors are likely to hog the limelight in Samvat 2080?
We have been talking about certain themes that are extremely simple and logical to understand, the 3C’s & 4F’s.
The 3Cs, namely, capex, credit growth, and consumption (more so discretionary, upper end, and luxury) are themes that must find a way to get into the portfolio of investors.
These are the pillars on which the economy is expected to grow. Also, select companies in this universe will benefit a lot for at least the next half a decade.
4Fs – Financialisation, Formalisation, Fiscal expenditure by the government, and farm income growth are the themes that will play out in an economic upturn, and select sectors and companies who are part of this theme will show robust growth and profitability.
If someone has Rs 10L to invest on Diwali – how should he/she do a selection of sectors in Samvat 2080? Please mention the percentage for each sector totaling 100%.
Though we try to understand the themes very well when we invest in a company, the larger rewards follow when you can be a bottom-up stock picker. We are also believers of buying proxy plays rather than the obvious beneficiaries.
If I try to approximately dissect our bottom-up businesses into sectors,
- 30 percent will be capex-oriented and real estate/Infra proxy plays (capital goods, infra, cement, energy, engineering, building materials),
- 25 percent will be credit growth or financialsation related (Banks, NBFC’s, intermediaries),
- 25 percent will be extremely niche and discretionary consumption related, and
- 20 percent will select auto and auto components, pharma, IT, Specialty chemicals and others.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)