Home Investments capex: Want to bet on capex recovery? Try these 5 sectors: Anmol Das

capex: Want to bet on capex recovery? Try these 5 sectors: Anmol Das

by Ozva Admin
“Most of the big players in the cement sector have a clear orientation to even double their existing capacities in the next 5 to 10 years,” he says. Anmol DasHead of research, Teji Mandi.

In an interview with ETMarkets, Das said: “Instead of looking for cheaper valuations among the small- and mid-cap space, we advise clients to continue to invest in high and visible growth of the main lines, even at higher multiples of appraisals”. Edited excerpts:

After the US Fed rate hike last week. What is the trajectory you foresee for RBI and how will it impact the markets?
In fact, RBI will also make an interest rate hike of up to 50 bps. We believe this is due to the fact that CPI inflation in India is 7% based on August data, which is not very high by RBI tolerable levels of between 4-6% vs. US Fed comfort rate less than 2% vs. current. August inflation at 8.3%.

What are your expectations of India Inc. for the September quarter?
The monsoons have extended well into September this year. Therefore, we believe that agricultural production will also be strong for most crops this year.

How do you see gold in the festival season?
Total gGold imports in FY23 between April and August saw a decline of around ~13% compared to the corresponding period last year.

This clearly means that gold’s severity has deteriorated as last year its prices continued to rise month-over-month, while in 2022 it has mostly deteriorated after the initial shock of the Russian-Ukrainian war.

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However, looking at the immense demand from retail consumers, gold will remain attractive at current price levels but marginally lower compared to last year as pent-up demand for consumer durables and other retail segments is higher overall.

The Cabinet approved the Scheme of Incentives Linked to Production (PLI) in the ‘National Program for High Efficiency Solar PV Modules’. The government is stepping up efforts to boost manufacturing. Do you see Industrials gaining traction in the near future?
The PLI scheme of capacity development for high-efficiency solar modules will definitely boost India’s renewable energy drive to reduce import bills and self-sufficiency along with investments of Rs 94,000 Cr as planned.

However, R&D spending will have to focus a bit more on energy storage also for the desired adaptation of Renewable Energies in the form of electrical charging.

Furthermore, after meeting domestic demand, sustainability and existing capacity will need to be utilized for export markets in Africa and South America, where the adaptability of solar energy will be higher due to abundant sunlight 365 days a year in comparison with northern geographic markets.

We are optimistic with this Government measure considering a significant success in its intention to reduce foreign import bills for fossil fuels, either through the Ethanol Blending Program, very much in line with achieving the target of 175 GW of energy capacity renewable by 2022, etc. .

Given that interest rates are likely to rise, what should be the right portfolio mix for investors looking to stay invested for, say, 5 years?
Raising interest rates will directly benefit banks as it significantly improves their margin, especially those banks with a larger retail portfolio.

Therefore, we believe that private banks will benefit the most, while larger PSU banks, with greater popularity among retailers, will see a likely re-rating in the next couple of years.

In addition to the financial sector, long-term investors need to understand the transformation and evolution/revival of other sectors, for example, renewable energy, defense, sugar and distilling, textiles, automobiles and auto accessories, hotels and hospitality, iInfrastructure and logistics, ocean and sea transportation, etc.

With the increase in population and improvement in living standards, the energy requirement and the need to diversify away from fossil fuels also increases.

Similarly, India is also diversifying its defense requirements and is also trying to become self-sufficient in industrial equipment.

What is your opinion on the small and mid-cap space that has managed to buck the trend? What should be the ideal portfolio mix for the small and mid-cap space?
We advise our clients on small and mid-cap scripts, based on various parameters unrelated to prior years’ profitability.

Most likely to include: change in business mix coupled with a completely different business atmosphere that has led to a change of direction for several businesses.

Manufacturing industries with high-growth visibility have become the new trendsetter in the small and mid-cap space.

Therefore, rather than looking for cheaper valuations among the small- and mid-cap space, we advise clients to continue to invest in visible high-growth major lines even at higher multiples of valuations to avoid sharp corrections in valuations. market fluctuations.

Any stock that is a capex cycle play for long-term investors who plan to hold the stock for about 5 years?
Long-term investors looking to play capex in the next phase of industry-wide capex expansion can look to invest in:

a) Large-cap cement companies:

Most of the big players in the cement sector have a clear target to double their existing capacities in the next 5 to 10 years.

In addition, several undervalued small cement companies may be swallowed up by the consolidation drive in the sector. Therefore, we recommend going with large cement players with 20M+ MT of existing capacities or more.

b) Defense and Transport:
In order to match the capabilities of its geopolitical rivals and develop self-sufficiency to meet its maritime requirements, the Indian government has clearly outlined plans to develop the national defense industrial sector along with shipbuilding capabilities.

Previously, India had been importing more than 70% of its defense weapons and ammunition and had not been able to manufacture its own warships and submarines, which led to the large amount of money being paid to foreign contractors, where the adjusted price exceeded the delayed cost overruns.

With new regulations restricting imports of several of those munitions, we believe we are witnessing the revival of PSU defense companies along with various private players evolving under ever faster Government policy making.

Upcoming sectors with Capex and large addressable markets:

c) Solar: Solar panel, module, solar glass and related products to be implemented by 2030.

d) Auto: Cheap EVs from the automotive sector where India could become a global manufacturer for export markets.

e) Durable consumer goods

With much cheaper labor costs compared to East Asian and ASEAN economies, India may attract the shift from manufacturing of consumer durables to India, as labor costs here will remain low for at least the next few decades.

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

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