These are themes the Midcap Mogul has now set his sights on

Santosh Nairmoneycontrol.comFormer fund manager and analyst Kenneth Andrade is betting on consumption to be the leading driver of the economy in the coming years. The Midcap Mogul’s (as Forbes India once called him) take goes against the popular view in the market than only an uptick in capacity expansion by companies can boost growth."Corporate capex is not the place to look at if you want India’s balance sheet to expand," Andrade says in a free-wheeling chat with moneycontrol.com."We will need to look further and my sense is that there are more people graduating into the earning cycle and trading up as consumers, than corporates expanding balance sheets. So individual balance sheet will now expand, like the corporates did so in the last decade," he saysAccording to Andrade, an infra capex of around Rs 1-1.5 lakh crore a year may sound huge, but the in bigger picture, it is still incremental."It will give a fillip (to the economy), but that won’t be much, beyond a point. After all, how much roads can you build, how many power plants?..the power sector is already grappling with excess capacity," he says.Shrinking returnsAnd Andrade pulls out an excel sheet to buttress his claims.It shows that the physical assets of 414 of the BSE-500 companies (banks, NBFCs have been excluded) has gone up 11 times since financial year 2005 to around Rs 72.72 lakh crore. "But the debt to equity ratio has nearly doubled during the same period and is now at an all-time high of 0.98," Andrade says. Further, aggregate profit in last five years has declined, indicating that incremental capex is not really adding to the bottomlines of corporates.In his recent speeches, RBI governor Raghuram Rajan has been repeatedly referring to the excess capacity in the Indian industry, and why as a nation we should not get carried away by our growth rate being higher than most other economies.And while the cost of capital has been declining, demand for bank loans has been tepid, given that most companies are grappling with bloated balance sheets.MNCs the leadersAndrade is bullish on MNC companies because they have been heavily investing in capacity over the last three to four years."As a rule, I track where the smart money is going," Andrade says."The investments by some of the MNC companies in the last 3-4 years is more than what they have invested since setting up shop here," he says, adding that balance sheet problems have prevented Indian companies from doing the same.Andrade expects many Indian companies to be taken over by MNCs in the coming days."MNCs and FDI(foreign direct investment) into Indian companies will be dominant theme in the medium term," he says.Recently a report by a consultancy firm highlighted the fact much of the FDI in recent months has gone into services firms and was not helping the manufacturing sector much.Andrade feels that will continue to be the trend in the foreseeable future."Manufacturing as a sector is unlikely to see big growth; a few companies that cater to domestic demand will benefit, but the probability of there being world class manufacturing firms is low," he says. Likely winnersWhile he is bullish on the consumption theme and MNC companies, Andrade is not necessarily restricting his watch list to fast moving consumer goods companies which are most closely associated with consumption."Break your monthly expenditure bill and you will find that FMCG is just a small part of it," he says. Andrade counts cellular services, media and logistic firms among the sectors which will benefit from increased consumption in the economy. DBT impactThe stress in rural India due to deficient rainfall will remain for a while, but bigger positive structural forces are at work, says Andrade.He sees Direct Benefits Transfer (DBT) as being a big game changer for the economy in general over the next five years, as it is extended to other areas like food, fertiliser. And it is not just from the point of savings for the government."Much of the subsidy benefits were being siphoned out of the system and going into dead assets like property," Andrade says. With the money now reaching the intended beneficiaries, it will start flowing back into the economy, he says.Financial inclusion and the government’s stated aim of doubling farm income by 2022 are the other two themes Andrade is bullish on.He does not see much scope for urban households to take on loans. However, thanks to DBT, JAM (Jan Dhan, Aadhar, Mobile) and the government’s efforts to boost farm income, Andrade sees rural households being better placed to take loans for meeting consumption demands."And that will be a really powerful trigger for the economy," Andrade says.Bearish on urban wages Andrade does not see urban wages growing much in the coming year. He cites two reasons for this belief."One, there are plenty of people entering the job market every year, and two, many of the jobs held by those in the 40-50 age group can be easily done for half the cost," Andrade says.But he does not see urban household income falling because of these factors."You will see a trend like in the west, where both partners will be working to make up for the sluggish wage growth," he says.