“We are positive on household capex which has its tentacles spread in the housing related proxies — be it building materials, cement or even real estate developers. The government’s fiscal position getting stronger, revenue collection being buoyant leads to infrastructure spend being stronger than expected,” says Ganeshram Jayaraman, Managing Director & Head of Institutional Equities, Spark Capital Advisors.
What kind of model portfolio have you formulated over the last couple of quarters? How do the large overweights look right now?
We are heavily overweight on the three sectors — financial, discretionary consumption and the industrial pack which includes both industrial consumables as well as their capital expenditure proxies.
Our horizon of building a portfolio is somewhere between 18 and 36 months. Some stocks are with an 18-month horizon, some have a three-year horizon. It is not meant for next quarter or two, but we still see that it is the portfolio bias which will help us.
We like financials because we think banks are over provisioned and over capitalised and that will lead to return on assets and return on equity expansion over the next three years. There are multiple drivers including margins, fee income, operating leverage, credit cost coming down and overall leverage gradually improving. All of this will lead to both ROA and ROE expansion.
In the case of discretionary consumption, our call is that overall accumulation of liquidity in the savings bank accounts will eventually lead to discretionary consumption picking up. It could be in various sub-segments like consumer durables or even real estate, housing related all kinds of proxies along with it. There are even pockets of it. With returning normalcy, alcohol or certain proxies there would continue to be our preferred baskets in discretionary consumption. But the largely leveraged household capital expenditure is in automobiles, travel and housing, all buckets where we like discretionary consumption.
We also industrial consumables and especially industrial capex. It is a combination of four factors where we see corporate capex coming back. In CY22, it will start taking shape. We are positive on household capex which has its tentacles spread in the housing related proxies — be it building materials, cement or even real estate developers. The government’s fiscal position getting stronger, revenue collection being buoyant leads to infrastructure spend being stronger than expected. We will continue to be positive on the government’s fiscal spend as well.
Lastly it is global capex which is a combination of the reflation that is happening globally which will lead to moderate demand picking up for Indian exports as well. All these points are considered there. We will be watching out for how this monetary situation will taper off and the excess liquidity will get absorbed. In some sense, our view is positive on earnings, negative on multiples and when we weigh the two, there is enough money to be made in these markets if we are focussed on the right sectors and the right kind of companies. That is what we are focussing all our attention on.
If multiples contract and earnings continue to rise, the tilt of the market returns would definitely be positive though perhaps not at the same rate of growth which we have seen in the last two-three years. Certain sections of the market are keeping their fingers crossed that the rollback of farm laws would not lead to agitation and pressure on the government on reforms in the other areas.What is your view?
We are not giving too much importance to this. In a noisy democracy like ours, this will keep happening and we do not as a way of our research give less importance to government action in general, especially if it is not relating to some of the key economic reforms.
Agriculture touches a greater proportion of the population and there could be compulsions which go beyond economics, where a fair bit of our focus is on the disinvestment and reforms on the asset monetisation side. We will want to keep our optimism on those fronts. We do not think there will be stumbling blocks on that side.
