We believe stock markets will be on strong footing backed by post- pandemic economic growth. Due to India’s vaccination programs, COVID-19 pandemic now appears more under control.
Strong economic parameter like GST collection, e-way billing, IIP, freight, and consumption across sectors for recent months are also encouraging which indicate well for the markets.
Omicron, inflation, China’s Evergrande collapse are areas of concern for the global economy and markets, but we expect the pickup of economic activity can at best be delayed – but not deflect - due to new virus strains. The market still has a potential to positively surprise as macro construct and earnings remain largely supportive.
With the government-initiated reforms – digital adoption and thrust on infrastructure creation is expected to pick up further momentum as manufacturing activity picks up.
Indian corporate fundamentals have improved materially over the past couple of years relative to other emerging markets. If the government continues its reform momentum, India may continue to attract higher foreign direct investment (FDI) inflows.
Several structural themes are emerging, which we believe should offer better alpha-generation opportunities.
Top themes/sectors for 2022
1) EV Sector: Keeping in line with India’s mission to achieve clean mobility, we have witnessed a lot of Auto OEMs investing and starting EV manufacturing. According to a report by Colliers, EV market in India is likely to attract investments of Rs 94000 Cr over next 5 years. We believe there is a huge potential for growth in this space.
Our top picks from this sector includes Sona BLW, Minda Industries and Tata Motors.
2) Defence: Indian defence market is at the cusp of revolution, with the introduction of government policies like Aatmanirbhar Bharat, Make in India and introduction of private players to speed up defence production and increase export by 5 times. In November PM Modi laid the foundation stone of defence industrial corridor project in Jhansi worth Rs 400cr to bolster defense manufacturing in India. India aims to increase production output to $25 billion in coming years which makes defence an attractive sector to park investor’s funds.
Our top picks from this sector includes MTAR Tech and L&T
3) IT (New Age tech) Sector: We believe IT sector is in a multi year upcycle due to robust demand environment, strong deal momentum, healthy deal pipeline and acceleration of digitalisation across all the sectors. Although valuations are not very cheap, but we believe IT companies would post strong corporate earnings over next 1-2 years so investors can accumulate good quality stocks in any significant dip in this sector.
Our top picks from this sector includes HCL Tech, Persistent Systems and Mindtree.
4) Renewable sector: Renewable sector can be the next big thing in Indian equities market. Renewable sector is expected to cross $15 billion investment in 2022 as predicted by Union Minister for Power and Renewable energy R K Singh. The ministry has also announced that it would impose basic customs duty (BCD) of 40 percent on solar modules and 25 percent on solar cells from April 1, 2022. Currently, there is no BCD on these items. This will boost domestic manufacturing in renewable sector. In 2022 country is planning to achieve 175GW installed capacity of renewable energy as set by Paris agreement of climate change. India aims to achieve 500Gw capacity by 2030. As on November 30, 52 solar parks have been sanctioned with a cumulative capacity of 37.92GW in 14 States.
Our top picks from this sector includes Tata Power.
5) Domestic manufacturing: India can potentially become the hub of global manufacturing by 2030. The introduction of PLI scheme aiming at boosting domestic manufacturing which is line with PM Modi's vision of 'Make in India' bharat is in focus. Additional allocation can be expected in this scheme in the forthcoming budget. Many international companies like Zoho and Wistron Corp have announced strategic partnerships with Indian companies and will invest in R&D in the manufacturing sector.
Our top picks from this sector includes Dixon, Polycab, Mold Tek Packaging.
6) Infrastructure sector: Infrastructure sector is also expected to boom in this calendar year. Last year government allocated record sum to railway infrastructure similar kind of allocations are expected in the upcoming budget as well. India is expected to become third-largest construction market in 2022. Government initiatives such as PM Gati shakti , national infrastructure pipeline and national monetization schemes are aimed to fasten the pace of road construction.
Our top picks from this sector includes GR Infraprojects and L&T.
7) Real Estate: There is definitely a structural shift in the space as residential sector is expected to grow significantly, with the central government aiming to build 20 million affordable houses in urban areas across the country by 2022, under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme. The current shortage of housing in urban areas is estimated to be ~10 million units. An additional 25 million units of affordable housing are required by 2030 to meet the growth in the country’s urban population. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs.
Our top picks from this sector includes Brigade Enterprises, Sobha Ltd, Prestige Estates.
(Mohit Nigam is Head - PMS, Hem Securities)
