Manufacturing Revival Can Boost Small And Mid Caps, Says Motilal Oswal's Prateek Agrawal
Markets are currently at a sustainable level, but there can be a slightly lower earnings growth, he says.
The revival of manufacturing has become a significant driver of strength in the markets, according to Prateek Agrawal.
If the current favourable policy environment persists and manufacturing continued to grow as a portion of the gross domestic product, it would be a reversal of the previous trend where it was losing market share, Agarwal, executive director at Motilal Oswal Asset Management Co., told BQ Prime.
This shift represents a notable change in the market dynamics and the mid caps and small caps could end up delivering better than other spaces, he said. "What is giving strength to this space after a long 12–13 years of underperforming is the revival of manufacturing."
The markets are currently at a sustainable level, but there can be a slightly lower earnings growth in terms of return expectations over the next few years. Slightly lower earnings are expected as valuations may have exceeded sustainable levels at present, according to Agrawal.
Where To Put Money
The theme of capital expenditure remains robust, and Agrawal expects longevity and growth in the defence and railways sector. These sectors will maintain their growth trajectory over an extended period, he said.
"Capacities are being expanded almost across the board, be it in the aerospace sector, be it in the naval space, and the policymakers are keeping a close track on this," he said.
Electronics Manufacturing Services
Electronics manufacturing services companies have a strong growth trajectory ahead of them, similar to information technology companies, Agrawal said.
A growth rate in the range of 40–50% can be sustained for an extended period within this sector, he said.
