Bullish on infrastructure related and capital goods sectors
Jyotivardhan Jaipuria, Founder & MD, Veda Investment Managers
Nov 24, 2017 | Source: ET Now
On recapitalization: Overall, it is something which the market was waiting for a long time. Recap is a very positive thing because it gives capital to the banks. A lot of that will be used to clean up the old NPLs which the banks were hesitant to take the hit on their books. This is because once they take the hit, then they do not really have further capital left. So, overall it will be a good move. It will probably help the banks to clean up a lot of the legacy issues and then probably they can move ahead and start lending again.
Correction in the markets: Yes, everybody has been waiting for the correction. It has not been happening which is true for not just India, it is true for the global markets. We have had a very sharp rally and this has been one of those odd years where even in bull markets, when you did not have any meaningful correction throughout the year. So if you do not get a correction, what happens is effectively markets at some point just tend to flatten out a bit. They go into ring bound phase and future returns tend to be slightly lower to that extent. So, I am still think we will get a correction but probably it may be more time correction than a price correction.
A big correction is not really going to come from India factors. It is probably going to come from outside India, In India, if you see there could be some correction if it really comes from two odd factors – one is it could be the Gujarat elections where you suddenly get some adverse results for the ruling party or it could be in the budget. If we get this revival of capital gains, we will start getting tax from shares .
Are you fully invested: No, we are waiting so we have some cash. We have 10 to 15% cash. We deploy that when the markets fall. We actually did use the cash a bit but we still have 10% to 15% cash and if we get a big dip coming in, then we want to have some cash in the kitty to deploy.
On sectors: We have been underweight in telecom for a few years now and we have not really entered that space. There is too much competitive pressure there. But it seems to be easing up a bit but we have more certainty and more value in a lot of other places.
The sectors which we are really bullish on are infrastructure related and capital goods because those are really cheap in terms of where they are on the earning cycle. There is a lot of capacity sitting there, demand has been very weak and there is a huge operating leverage once demand starts to pick up. Most of it is coming from the government and we are not very optimistic on the private sector capex for the next 18 months at least.
So we are investing in areas where the government is spending. We will see these order books translate into higher sales and very high margins because operating leverage will kick in. That is one area where we are really focussed and we have put in a lot of our money there.
The other area we have been focussing on is rural India so we got exposure to tractors, agro chemicals and a lot of things in rural India. That is a sector which has played out well and at this level the valuations are not that cheap but it is something which over two-three years will do well.
In consumers we actually do not like the staples which are expensive but we like the discretionary part so there are stocks in the discretionary side we are bullish on.