Sonam Srivastava, smallcase manager and founder of Wright Research, expects India to continue to be investors’ favoured destination among emerging markets for the remaining FY24, attributing it to the government’s pro-business stance.
With more than 10 years of experience in systematic portfolio management and quantitative trading, Srivastava says technology is a portfolio must-have despite the recent hammering. The digital transformation is picking up and the sector offers a high margin of safety, she says.
But she has a word of caution on picking microcaps and minicaps. While these segments offer high rewards, they come with elevated risks, especially in a market where valuations are stretched, Srivastava tells Moneycontrol in an interview. Edited excerpts:
Do you think India will continue to be the top investment destination among the emerging markets for the rest of the financial year?
Absolutely, India is increasingly being viewed as a prime investment destination among emerging markets. The country has shown remarkable resilience and adaptability, especially in the face of global economic uncertainties. Factors like political stability, favourable demographics and regulatory initiatives are making India a compelling story.
Sovereign wealth funds and central banks are particularly keen on India's debt market. Given the current trajectory and the government's pro-business stance, I expect India to maintain its position as the top investment pick in emerging markets for the rest of the financial year.
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Your take on the August sales data. Are there still opportunities in the auto and ancillary space?
The August sales data for the auto sector is quite promising, especially with companies like Maruti Suzuki and Mahindra & Mahindra posting significant growth. However, it's a mixed bag. While some companies like Tata Motors have seen a decline, others like TVS Motor Company have shown growth.
The sector is ripe for selective investment. With the festive season approaching, pent-up demand is likely to drive sales further. However, one must be cautious due to global supply-chain issues and semiconductor shortages. Overall, I see a lot of opportunities in the auto and ancillary space but due diligence is key.
Why is there so much optimism in the industrial space?
There are a number of reasons for the optimism in the industrial space. First, the Indian economy is growing, which is leading to increased demand for industrial products. Second, the government is investing heavily in infrastructure, which is also boosting demand for industrial products. Third, the government is also taking steps to improve the ease of doing business in India, which is making it more attractive for foreign investors to invest in the industrial sector.
The industrial space is experiencing a renaissance in India, thanks in part to initiatives like Make in India. The sector is witnessing strong traction, especially in exports and domestic demand. Global companies are increasingly looking at India as a next-generation manufacturing hub. The past three years have significantly changed the global perception of India's industrial capabilities. I believe the optimism is well-founded and expect brighter prospects for this space going forward.
Also read: Over 100 small-caps make double-digit gains as indices scale fresh highs
Considering the recent US economic data, do you think the Fed hike cycle is done?
The recent US economic data has been mixed. On the one hand, inflation is still running hot, which suggests that the Fed may need to continue hiking rates. On the other hand, economic growth is slowing, which could lead the Fed to pause its rate hiking cycle.
The US Federal Reserve's stance has been hawkish and chairman (Jerome) Powell's recent comments indicate that more rate hikes could be on the horizon if deemed necessary. While the US economic data has been robust, inflationary pressures are still a concern.
I don't think we can conclusively say that the Fed's rate-hiking cycle is done. Investors should prepare for a scenario where the Fed could increase rates further, impacting global liquidity.
Is it the time to exercise caution rather than chase momentum in the microcaps and minicaps?
Given the current market dynamics and the run-up we've seen in microcaps and minicaps, caution is advisable. While these segments offer high-reward potential, they come with elevated risks, especially in a market where valuations are stretched.
It's crucial to focus on fundamentals rather than getting carried away by momentum. A disciplined investment approach focusing on intrinsic value would be more prudent in the current scenario.
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One sector where you cannot avoid taking exposure with a one-year perspective?
Technology is one sector that's hard to ignore, especially with the accelerated digital transformation we're witnessing. The sector has shown resilience and offers a high margin of safety.
From AI to cloud computing, technology is becoming a primary expense for businesses, big or small. Given its essential nature in today's world and the huge growth potential, technology is the sector where exposure seems not just beneficial but almost necessary for any well-diversified portfolio.
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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