The basic ingredients for an upswing in capital expenditure is there, but it still needs a trigger, says Vetri Subramaniam, Chief Investment Officer, UTI Asset Management Company.
Latest data released by industry body FICCI shows a significant improvement in capacity utilization levels. In some sectors like metal, capacity utilization has reached 90 percent, and in others like cement and auto, the capacity utilisation is 80 percent. Stocks that are a play on the capex cycle, like capital goods for one, have done well in the recent stock market rally as investors are betting that private sector investments are set to take off. The missing ingredient, however, is animal spirits of businessmen, Subramaniam said in an interview to Moneycontrol.
“Corporate balances are at their best in 20 years, and so is the case with bank balance sheets. Companies have the ability to invest, banks have the ability to lend,” he said.
“Capacity utilisation levels are getting to a point where companies are thinking about expanding capacity, but you have not yet reached the inflexion point where companies are feeling the pressure on capacity and feel the need to invest,” he said.
According to Vetri, one of the reasons is that many corporate groups are treading cautiously, having run into trouble in the previous capex upcycle after having over invested. Also, because of the tension between the US and China, businesses are wondering how to invest without being caught in the crossfire.
Subramaniam is bullish on large banks as he feels they will be able to weather the short term pressure on net interest margins. However, he is not as confident about small and mid-sized banks and expects them to struggle.
He is also bullish on the auto sector as he feels the sector is still in the early stages of growth. The key challenge for the sector, he says is the demands on cash flows as the industry transitions towards electric vehicles.
Subramaniam feels the recent correction in the IT sector may be a good time to start accumulating the stocks. He also has a positive view on the pharmaceuticals sector.
On the debate on whether passively managed funds (index funds, exchange traded funds) are better or actively management funds, Subramaniam feels passively managed funds have a lot scope because active fund managers no longer have the edge in terms of knowledge or research and that is making it harder to beat the market.
“You now have 42 AMCs, add to that 20 insurance firms, 150 PMS providers and all the global investors, many of whom have been investing in India for the last 20 years or more…they have discovered many multi-baggers in India before we Indians discovered them. I don’t think anyone can argue that the Indian market is dramatically under researched,” he said.
“You can have an impact based on the portfolio size. Someone managing a Rs 50 crore will be able to create a portfolio that is very different from someone managing Rs 5000 crore. A large fund can never create a very differentiated portfolio because size creates restrictions in terms of the stocks it can buy. So a size difference may be there, but not knowledge difference.”
To read the full interview, click here
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