Time To Pick 'Unloved' Sectors, Says N Jayakumar
With election due next year, the period between 2023 and 2026 looks attractive for manufacturing, says Jayakumar.
The time is right for bottom-up stock picking as, according to N Jayakumar of Prime Securities Ltd., "unloved" and "under-owned" sectors like manufacturing, metals and pharma will emerge as the new leaders.
The Indian market was overvalued in comparison with historical averages, Jayakumar, managing director at Prime Securities, told BQ Prime's Niraj Shah in an interview. But recently, foreign institutions have been selling, especially what they own in financials and technology sectors, he said.
Foreign institutional exposure at the 2008 levels and the pessimism around stock market has never been higher, he said. However, if the rate hikes slow down or come to a standstill, the market will see a very sharp upward move, Jayakumar said.
Despite multiple headwinds, including a possible recession in the U.S. and decline in emerging markets, investors have kept themselves reasonably protected and secured, he said. In such a case, according to Jayakumar, sectors that have been under-owned should emerge as resilient players.
Jayakumar said the Adani-Hindenburg episode has not spooked the markets.
The Adani rout threatened to derail the "secular growth story", but within two weeks of the incident, the stock market polarised itself from the group and has been running stable, he said. It could have affected the public sector units, but the manner in which public sector banks have come forth and spoken about how their exposures have been well under reasonable norms, has kept them safe too, he said.
Other Highlights
Overseas investors and debt holders in the conglomerate have been more exposed to the consequences of the Adani rout.
There is enough time for the group to recover and the market to catch speed in the course of the next 12–18 months.
Even though the follow-on public offering was withdrawn, there are high chances that fundraising may happen again, perhaps, at a different price.
The group will not have a problem with liquidity or debt in the short run as it may not be able to raise equity at valuations they had thought of, but will eventually raise at a lower price.
The challenges of refinancing will, at the most, slow down expansion plans and this could derail private sector capex, but just for sometime.
Key Bets
Jayakumar is betting on manufacturing as most of the investments are made in the year before and two years after elections.
Hence, with the general election due next year, the period between 2023 and 2026 looks attractive for manufacturing, aided by production-linked incentives, China-plus-one strategy, weakening of the Indian rupee, capacities moving from Taiwan to India and other neighbouring nations, and the government's extensive push.
These movements will likely generate employment and increase the gross domestic product also, he said.
The integrated metal space, especially steel and the pharma sector, is "unloved and under-owned".
Most of these stocks, barring one or two industry leaders, are at 52-week lows, but some of these have yielded "record-quarterly" numbers with increase in both Ebitda margins and volume growth, he said.
Considering the characteristics of the economy at present, manufacturing, metals and pharma should do really well, Jayakumar said, listing these are his top bets.
Watch the full interview here:
Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime