Stay Invested As Capex Revival Is Imminent, HDFC Securities’ Unmesh Sharma Says
For new-age technology companies, stress is apparent in the private sector, and it is going to get worse, says Sharma.
Even as a downdraft is around the corner, a capex cycle revival is imminent and the equity market can benefit from the fiscal position of the country and influx of mature retail investors, according to Unmesh Sharma of HDFC Securities.
Investors would want to benefit from the upcoming revival of a multi-year capex cycle, with significant push from the government, “even if a year or two of that is priced in”, Sharma, the head of institutional equities at HDFC Securities, told BQ Prime’s Niraj Shah.
“We can't time the market, so what you have to do is stay invested.”
To navigate the downdraft, Sharma suggests having a strong bias towards chasing value. “We define value as cash flows, not as earnings or book value, so there is value still sitting there, at least on a relative basis,” Sharma said.
The fiscal situation of the government is in good shape, he said. "In that context, we continuously believe that economy-facing sectors are going to do well… industrials over consumer is the theme for the next 12 months now.”
According to Sharma, the “rock solid companies” to look at can include the ones that will go through the downdraft cycle and come out on top, including long-term thematics like capital markets, insurance, or gas where things are not expected to change.
While there can be a dip in valuations for such stocks, “but then you would want to continuously stagger your investments during that time”, he said.
Instead of waiting to enter the market later amid a downturn, Sharma recommends participating in it.
“In that context, we believe that if you look at it from the 12 months perspective, the push from the government, starting from the Prime Minister's Office all the way down, we feel… some momentum which is there.”
Revival Of Capex Cycle
Sharma expects capital expenditure to come in and there will be reasonable visibility as to where it will go as soon as it is announced.
In every cycle, there are companies for which the market wants to pay for, so it’s better to get your foot in the door and build large positions, he said.
Given the banking reforms since 2015, lenders now ensure that promoters have “a lot of skin in the game”, Sharma said.
“There is a push from the government as well as from banks to ensure there's enough equity in there… If capex gets announced, on a management that you already like, the probability that it actually will play out, because they have some visibility of demand, is higher. It's a little easier in that sense to invest in long-standing projects in infra as compared to the new-age technology sector.”
Sharma said he doesn't “mind paying a little bit extra if that is the only way to get into the game”.
Pressure On IT Stocks
While the Indian information technology bellwethers are poised to do well in the long-term, Sharma expects the current volatility will keep their shares under pressure.
For new-age technology companies, stress is apparent in the private sector and it is going to get worse, he said.
According to him, a lot of mergers and acquisitions are happening in the space and private equity is trying to move out.
Watch the full conversation here: