Samvat 2079 stocks: Positive drivers for India that will help sustain premium over peers in Samvat 2079

The fast changing economic landscape and India’s improving ranking on global competitiveness is set to make it rise as a global power force over the next decade, says Rajesh Kothari, smallcase manager, founder and chief investment officer at AlfAccurate Advisors. “As India continues to persist as the fastest-growing economy, it is going to be a golden period for equity investors. Hence, India deserves a premium compared to its Asian peers,” Kothari told ETMarkets in an interview. Edited excerpts:
As Samvat 2079 starts, what are the positive drivers for India that will help it sustain the premium over its peers?

I believe that the next decade is going to be the Indian decade, with India expected to become the third-largest economy in the world by 2027 according to the IMF (International Monetary Fund).

India’s rank improvements in the categories of ease of doing business from 133 to 63, and the global competitiveness index from 59 to 37, are both indicative of the changing economic landscape and India’s rise as a global powerful force.

Thus, as India continues to persist as the fastest-growing economy, it is going to be a golden period for equity investors. Hence, India deserves a premium compared to its Asian peers.

So where do you see Nifty 50 and Sensex by the next Diwali?

India is always a bottom-up market. It is difficult to predict markets in the short term, but in the long term, the market is a mirror of earnings growth.

After subdued earning growth of 9% CAGR (compounded annual growth rate) for the last

10-12 years, we expect Nifty 50 to deliver 12%+ earnings growth over the next 2-3 years. Importantly, many companies are likely to double their revenue and profits over the next 4-7 years.

We use our 3M investment approach – Market size, market share and margin of safety to identify such companies to create long term wealth for our investors.

What is your view on the Indian market in the backdrop of the current global situation?

European and American markets have broken the June lows. The US Federal Reserve continues to push hard on interest rates, with Jerome Powell declaring 4.5% as the terminal interest rate by next year.

While teetering the global economy and turmoil in markets, the Indian equity market continued to demonstrate resilience compared to other emerging markets.

While we expect the market to remain volatile, we remain constructive on the Indian equity market, given the strong domestic economy and healthy corporate balance sheet.

We believe that the right stock selection can continue to offer investors better returns compared to other asset classes for a long-term investment horizon.

Any major downside risks that you see for Indian equities over the next one year?

While opportunities are abundant, global dynamics are changing at a rapid pace, resulting in the emergence of a new set of risks. This has made the world volatile, uncertain, complex, and ambiguous (VUCA).

This VUCA effect poses obstacles to the corporate world, compelling companies to adapt, innovate and respond with agility.

These changing industry dynamics have resulted in a shift in corporate earnings, sectoral leadership, and the consequent weightages in the equity indices. Hence, portfolio construction should be done meticulously, and there should be enough agility to change the portfolio, if required, without any bias.

Which are the themes you see emerging over the next one year and opening new opportunities for D-Street investors?

We expect three emerging themes to continue to pave the way and provide significant investment opportunities in the coming decade:

1. Big getting Bigger

Our government has made massive strides in accelerating the formalization of the economy through the instruments of digitisation and policy reforms like GST, RERA, etc. However, within the organised sector, the gap between large and small companies is growing, as large companies have enhanced their innovation capabilities, and benefited from economies of scale. I believe this trend will continue to accelerate as big companies with formidable balance sheets and quick adaptability to change are likely to gain market share.

2. Capex revival

India’s capital expenditure is on the cusp of a pick-up, aided by factors such as deleveraged corporate balance sheets, a well-capitalised banking system, and rising domestic demand. While traditional growth areas like cement, and metal drive capital expenditure, sectors such as data centres, robotics, and automation are emerging as new capex drivers.

3. Exports Opportunity

Due to the pandemic in China, the global procurement landscape is changing, with large conglomerates seeking to reduce their dependence on China as their manufacturing base, and looking at other countries to diversify their outsourcing.

Lower manufacturing costs, cheaper labour availability, and overall ease of doing business makes India an extremely viable alternative for manufacturing and product development, especially in the segments of pharma, chemicals and electronics.

Besides, the recent unprecedented rise in power and fuel costs due to geopolitical tensions between Russia and Ukraine has substantially impacted the profitability of European companies. We believe that these severe cost pressures will further expand the diversification of the manufacturing bases from the Western hemisphere to the Eastern hemisphere, and add to the rising export opportunities, particularly for countries like India.

This makes the Indian’s government’s target to increase exports to $1 trillion by 2030 from $418 billion currently feasible, while opening up a new avenue of investment opportunities on the D-Street.

Which sectors according to you are likely to underperform over the next one year and why?

We remain negative on the commodity sector and underweight information technology sector. Besides that, we recommend investors to avoid companies with poor corporate governance and high leverage balance sheets.

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

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