Your view on the mid-and small-caps?
There are good investment opportunities available in companies across market caps and sectors, especially the ones that have moderate leverage, a strong balance sheet, steady and robust business models, businesses with low competitive intensity, and above all good management. Companies with these business attributes may be able to weather the storm better than others.
Are stocks in the financial sector still investment-worthy?
The loan moratorium/restructuring has created some amount of uncertainty around the sector. The market is awaiting clarity on the treatment of some of these loans. A lot of banks and non-banking financial institutions (NBFCs) have raised capital in anticipation of a spike in non-performing assets (NPAs) post-withdrawal of the moratorium. The financial sector, in general, has underperformed the broad markets over the past four months given this uncertainty, and hence, a lot of the negative news may already be priced in. While overall we are underweight the financial sector across most of our portfolios, we are quite positive, particularly, on the insurance businesses within the financial sector. Further, we feel that select large-cap banks and NBFCs may be better positioned in current conditions.
Your overweight and underweight sectors?
We have been quite positive on the agri, specialty chemicals, and consumer discretionary space. The specialty chemical business in India has gained momentum over the past few years and many companies have developed significant knowledge and skill surrounding complex chemistry. Further, they have managed to secure long term contracts with global agriculture and pharma players. Thus, we expect some of the niche players in this segment to attract significant investments in creating global scale capacities over the next three-five years.
As regards the infrastructure sector, it is expected to take a slightly longer time to recover from the slowdown. In the current scenario, infrastructure spending, both government and private, is expected to remain muted given the severe strain on the government’s fiscal situation post Covid-19. While existing projects may resume, one can expect a significant delay in payments and an elongated working capital cycle.
What lies ahead for the telecom sector in India, especially, after the adjusted gross revenue (AGR) verdict?
Post the AGR verdict, most of the uncertainty surrounding the sector has been addressed. We expect the competitive intensity which was prevalent over the past few years to reduce, as most players would look to increase tariffs over time to mitigate the financial impact of the AGR. We are positive on the sector.
What are the themes that would attract investors now?
The domestic manufacturing theme is likely to gain momentum in the coming years. Most global manufacturers are likely to diversify their supply chain and this puts India at a significant advantage, especially in areas such as Chemicals (agriculture and pharma), Automobiles, and Electronics, given the low cost of highly skilled labour, better use of technology, and cost competitiveness. It is expected that huge investments are likely to flow into some of these sectors over the next few years thus creating significant opportunities in the engineering and manufacturing space. This may also create employment opportunities and more meaningful and sustainable improvement in our per capita income, which may eventually drive consumption demand in India.
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