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Daily Voice | This investment expert is bullish on these 3 multi-year broad themes

At Sanctum, we have positioned our portfolios with a focus on multi-year broad themes including housing, manufacturing and financial services, said Hemang Kapasi

September 25, 2022 / 12:04 PM IST
Hemang Kapasi is the Head of Equities at Sanctum Wealth

Hemang Kapasi is the Head of Equities at Sanctum Wealth


India is making all the right noises on the policy front, a piece that was missing for quite a long time. Having proven its mettle in services sector over the years, India is making significant shift with policy reforms to boost its manufacturing sector, Hemang Kapasi of Sanctum Wealth told Moneycontrol in an interview.

Sanctum Wealth has positioned its portfolios with a focus on multi-year broad themes including housing, manufacturing and financial services, says the Head of Equities, who has over 16 years of experience in the capital markets.

While a repo rate hike of more than 25 bps can’t be ruled out after a steep hike by US Fed, Sanctum believes that India is close to peaking of interest rate cycle, says Kapasi who manages the flagship Equity PMS offerings for Sanctum Indian Olympians & Sanctum Indian Titans. Edited excerpts:

What are the risk factors that are yet to be priced in by the market participants?

As we speak, the Dollar index has topped 113 levels. This was last seen rising to these levels two decades back in mid-2000 just before the dotcom crash in the world markets. The unprecedented pace of normalizing of interest rates in US last seen in 1970 and 80's might lead to a deeper recession in the developed world.

Till now, India is relatively better placed both on inflation and growth. On inflation front, India had to deal largely with the supply-side inflation, which is cooling off. Unlike the West, India did not have the baggage of excessively loose monetary policy, which has compounded the inflation problem for them.

With relentless strength in Dollar index, India could be prone to currency-led inflation as we are still large importer of energy and electronic goods. That risk has not yet unfolded completely, and till now markets have been factoring in a low probability of trouble on that front.

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Do you think India is like a blue chip or a large cap stock in the global space?

Well, we would not like to put any tag, but fundamentals and data speak for themselves.

India is the only economy to have improved its overall debt to GDP ratio since 2008 and which is getting reflected in the equity market outperformance. The largest emerging market story China has given negative returns whereas India has clearly outperformed both emerging and developed markets by a mile delivering double digit CAGR returns in last 15 years.

India is making all the right noises on the policy front as well, a piece that was missing for quite a long time. Having proven its mettle in services sector over the years, India is making significant shift with policy reforms to boost its manufacturing sector.

India is also making significant progress in developing roads, digital infrastructure (which is miles ahead of developed markets) from Aadhaar to UPI and now ONDC making a significant impact on economy leading to more inclusive, data centric and formalised economy.

And at last, at the cost of repeating, India is one of the large economies growing at high single digit growth, having favourable demographics, and a stable and strong political and judicial system in place.

While we can't rule out short-term volatility, India is still one of the most favoured destinations for long-term capital which can be seen in record FDI inflows of $84 billion, despite a significant withdrawal by FIIs in FY22.

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What is the best investment theme among banking & financial or capital goods & infrastructure with ancillaries?

We have been positive on both the sectors for quite some time. In our annual outlook for 2022 at the start of the year we had discussed our positive outlook on these sectors. Both these sectors have been laggards in the previous cycle and were seen to be turning around.

Speaking of financial sector, at this juncture the credit growth has hit nine years high of 15.5 percent in August 2022 and with festive season around, these trends augur well. Having said that, with system liquidity turning negative and sticky inflation leading to rise in interest rates are near term monitorable for sustained credit growth.

We believe manufacturing capex as a theme is here to stay for longer term. Within which industrials and capital goods sector one needs to select players with longevity of business rather than short term beneficiary as valuation have risen significantly on this front and one needs to be cognizant of weaker businesses within the sector now.

At Sanctum, we have positioned our portfolios with a focus on multi-year broad themes including housing, manufacturing and financial services and we continue to look out for emerging themes within these broad themes that will benefit the economic acceleration.

Do you still see a major possibility of Indian market hitting June lows again in the rest of the financial year?

Nothing can be said with certainty. But as we see things, all the lead indicators in India are yet to weaken while these have already weakened or weakening in the global context.

Large economic blocks are going through difficult times and the cycles are also different this time round. To put in context, Euro zone is struggling with war and energy crisis while in US things have started to slowdown post significant interest rates hikes.

Compared to that, in India we are seeing accelerating credit growth, PMIs are seen strong as well as capex indicators are improving.

The Indian markets wouldn’t be immune to these global issues in the interim but the long-term structural changes which India has undertaken over the years will help to bounce back faster and stronger.

Do you expect a 50 bps hike in repo rate by the RBI in the September policy meeting? Also, do you expect the growth forecast to be lowered for FY23 and FY24?

While a repo rate hike of more than 25 bps can’t be ruled out after a steep hike by US Fed, we believe that we are close to peaking of interest rate cycle in India. On the growth forecast front, RBI is unlikely to tweak the forecast in the coming meet as there has not been a meaningful change in parameters the RBI used while lowering the growth forecast in April 2022.

Do you think the Federal Reserve will hike the funds rate by another 75 bps in the November policy meeting as well, at the cost of economic pain?

The Fed is very clear on prioritizing inflation control for now, even if it comes at the cost of economic pain. Another significant hike from the Fed is highly probable especially if there is no improvement in the inflation trajectory.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Sep 25, 2022 12:04 pm