India’s GDP continues to surge ahead, maintaining its position as the fastest-growing major economy, with nominal growth in double digits, said Vikas Gupta, CEO and Chief Investment Strategist at Omniscience Capital.
In an interview with Moneycontrol, Gupta pointed to strong indicators across the board. “Both services and manufacturing PMIs are flashing high growth, GST collections are healthy, power consumption and railway freight data both show growth, government spending on infrastructure remains high,” he said.
He also noted that India’s export prospects are improving, aided by the India-UK trade deal already in place and ongoing negotiations with the US and other countries.
On the global front, Gupta said uncertainty is giving way to stability. “Globally, we believe things are moving from uncertain towards certain with the US-China trade deal showing that economic warfare [is] also settling down. Hence, we would think the situation is more biased towards market making new highs,” he said.
Are you bullish on the CDMO opportunity in the pharma space?
CDMO (Contract Development and Manufacturing Organization) is a great opportunity for India to establish its supremacy in one more highly scientific and technical area of expertise. The market is growing at a fast pace of around 15+ percent CAGR. This is a very exciting growth vector.
The opportunity has all the characteristics of a promising growth vector according to the Scientific Investing Framework that we follow. For example, the companies mostly pass the Capital Destroyers and Capital Eroders filters, due to their strong balance sheets and persistent competitive advantages. However, most of the companies will not pass the Capital Imploders filter which looks for companies at a discount to their intrinsic values. Suppose one analyses some companies deeply and is regularly watching for an opportunity. In that case, they might find a handful of opportunities when some company is available at a discount to its intrinsic value.
Are textiles and agrochemicals structurally positive sectors?
Textiles is a market with domestic and export opportunities. The market for textiles is growing at double-digit and that makes it a promising growth vector. However, many companies have relatively weak balance sheets and do not pass the Capital Destroyers filter. Some have weak competitive advantages and do not pass the Capital Eroders filter. Also, many do not pass the Capital Imploders filter due to their high valuations, significantly above their intrinsic values. Overall, there are a large number of companies, and if one is selective and sticks rigorously to the scientific investing framework, one might be able to assemble a reasonably diversified portfolio of promising textile companies.
Agrochemicals, too, have a large number of companies in the universe, but again, the challenges are similar in terms of balance sheet strength and valuations. One should be highly selective to find good investment opportunities.
Do you believe all growth drivers are now in place for India, following the easing of most risk factors?
India’s GDP remains on the fast track; in fact, India is the fastest-growing major economy, with nominal growth in double digits. Both services and manufacturing PMIs are flashing high growth, GST collections are healthy, power consumption and railway freight data both show growth, government spending on infrastructure remains high and is likely to increase over the next several years. Export opportunities are increasing with the India-UK trade deal already in place and the India-US and other trade deals in the works.
FDI is already growing, with India being seen as one of the inevitable destinations for large-scale global manufacturing as part of the re-architecting of global supply chains away from China.
Finally, inflation is low and trending lower, thus giving the RBI room for aggressive cuts. Interest rate cuts not only provide support to economic growth by making capital cheaper, but also decrease the discount rates, thus justifying higher market multiples. FIIs are also coming back, and if the Fed cuts rates this could accelerate.
Do you think valuations in the defence space appear stretched?
The core Defence weapons and equipment manufacturers remain biased on the overvalued side. These companies have multi-year order books. Triggered by Operation Sindoor, it is likely that the Indian Armed Forces and the Defence Ministry would put pressure on for faster execution. If that happens, then the valuations might turn out to be reasonable and the revenue and earnings growth rates high.
Ideally, an investor should consider the other dimensions of modern defence, such as cyber security, strategic materials, economic warfare, logistics and supply chain, civil works for defence etc., as opportunities, besides just arms and ammunition manufacturing.
From an investment universe which is designed based on the above broader but integral dimensions of Defence, one can assemble a balanced portfolio with large growth opportunities combined with reasonable valuations.
Do you think the market will struggle to hit its previous record high, given the global uncertainty?
While the world looks volatile, things are moving towards settlement as can be seen from the Russia-Ukraine talks. The fact that discussions are being explored indicates that, one by on,e most of the hot spots will start subsiding. Similarly, the US-China trade deal shows that economic warfare is also settling down. So things are moving from uncertain towards certain.
We would think the situation is more biased towards making new highs.
Do you think the long-term theme of MNCs diversifying away from China remains intact?
The move by Apple to move production to India despite Trump’s disapproval clearly shows that the economic logic to move to India is very strong. We would think that we would see many more such moves in the next several quarters. If a US-India trade deal happens, then this could accelerate many times over.
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.
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