The Indian government's Atmanirbhar Bharat initiative has paved way for massive economic and financial opportunities for investors across various sectors. The push for defence equipment manufacturing is one such vista that has unfurled before investors.
Investors can expect multifold profits with the holding of defence stocks for 15-20 years, believes Videsh K Totaare, CEO and MD at Archers Wealth Management.
In an interaction with Moneycontrol, he recommends accumulating the IT space at lower valuations and prices. "We are keenly watching out for price corrections because of the new free bilateral trade agreement between India–Australia and India–Britain. It is an enormous opportunity for IT companies to expand," says the seasoned financial expert.
Excerpts from the discussion:
How do you approach defensive names like the IT sector that has faced margin pressure but orderbook remains strong?
The information technology and business process management (IT-BPM) has emerged as one of the fastest-growing sectors in the Indian economy, positioning the country as one of the world's most prominent software superpowers. It contributed 8 percent to India's GDP in the fiscal year 2021 and has generated an estimated revenue of $194 billion, with an increase of 2.3 percent on-year.
According to STPI (Software Technology Park of India), software exports by the IT companies connected to it, stood at Rs 1.20 lakh crore ($16.29 billion) in the first quarter of FY22. I would recommend accumulating IT stocks at lower valuations and prices.
We are keenly watching out for price corrections because of the new free bilateral trade agreement between India–Australia and India–Britain. It is an enormous opportunity for IT companies to expand. Technology-based exchange-traded funds (ETFs) are a great way to invest in the technology sector.
What about the cement space, given the rising focus on infrastructure in India?
India is the second largest cement producer in the world. The demand for cement is expected to reach 550-600 million tonnes per annum (MTPA) by 2025 because of the expanding demand from different sectors such as housing, commercial construction, and industrial construction. The new policy reforms, new production technology, higher capacity, better distribution channels and decontrol of pricing has only elevated the overall growth.
In India, one of the important factors that determine the well-being of its people is the per-capita consumption of cement. Right now, the entire cement sector is trading at a higher valuation, and I would recommend buying cement stocks on dips/price corrections.
Is it the right time to bet on commodity consumer companies, rather than commodity-related stocks?
Yes, investors can bet on commodity consumer companies, but for a longer time horizon of 5-10 years. Commodity consumer companies have been consistently well-performing over the last two decades. However, commodity prices have massively inflated recently, forcing these companies to take a hit on margins by a long shot.
In fact, the prices of crude derivatives jacked up significantly – vinyl acetate monomer (VAM) skyrocketed to a 90 percent high, palm oil soared up by 55 percent, and aluminium and copper are jacked up by 40 percent in comparison to their FY21 average prices. Inflated vegetable oil and sugar prices have put tremendous pressure on food.
Despite increasing input prices, most FMCG companies have a strong foundation and have a favourable business environment to protect their margins. A deep and well-optimised distribution channel, increasing consumption, increasing population, widening geographies and higher volumes will continue to empower these companies with expansive pricing power.
Defence space has seen a significant run-up recently. How do you approach the space?
Finance Minister Nirmala Sitharaman in Union Budget 2022-23 announced an increase in allocation for the Ministry of Defence (MoD) by 9.8 percent to Rs 5.25 trillion ($70.6 billion). Russia's war against Ukraine has pumped up every country in the world to strengthen its defence system.
India must be on its toes more so now than ever, with escalating heat with rival countries like Pakistan and China. Also considering the issues of Kashmir and Arunachal Pradesh. India imports around 75-85 percent (by value) of defence equipment from countries like Russia, Japan, Israel, and the US. Moreover, India has been the largest importer of arms globally in recent years.
Our government is now pushing for 'Atmanirbhar (indigenous development)' in defence equipment production. The Government of India has a futuristic vision to produce 70-80 percent of Defence equipment in India. It has set a target of $25.00 billion by 2025. This is a massive investment opportunity for everyone.
Do you think this new-age tech companies listed in 2021 are available at attractive valuations now?
Yes, they are available at attractive valuations. New-age tech companies are disrupting the traditional business environment and defining new norms pertaining to how consumers and businesses interact with each other. And there is an enormous untapped and untouched market ready to be harnessed and reap profit from.
India has a population of 1.4 billion. Nearly 750 million have a 4G connection, and only 120-150 million people buy and transact online. The government's collaboration with these tech companies is only speeding up the digital penetration. If we are to forecast, the online buyer's population will soar to 300-500 million by 2025-2027. This will upthrust the market valuation of many new-age tech companies — and to simply put it, this implies that they are currently available at attractive valuations.
Do you think green infrastructure is the emerging theme where one should start taking exposure now?
I believe that the green infrastructure concept in India is at a nascent state. At least for the next few years, its acceptance and growth will depend largely on its inclusion in government policies. I personally support green infrastructure, but it is too early to comment on this sector and make any conclusion.
What are your top themes that you are suggesting to your clients now?
Banking and Finance, NBFC, Pharma, Metal, IT, Defence, Consumer Goods, Chemical are top themes.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.