Sachin Shah on macro tailwinds that will boost Indian market, 3 sectors to bet on

Time of India

03-07-2025

Live Events
You Might Also Like:
What are the top compounding themes for the next three years? Dikshit Mittal answers
You Might Also Like:
Focus on undervalued sectors with long-term growth potential: Deepak Shenoy
(You can now subscribe to our
(You can now subscribe to our ETMarkets WhatsApp channel
, Executive Director and Fund Manager,, says despite geopolitical worries like India-Pakistan and Iran-Israel-US tensions, the Indian equity markets surged, delivering 10-12% gains in April-May-June. Regulator confidence stemming from controlled inflation, GDP growth, as well as RBI support boosted the market. Subdued oil prices, significantly below India's tolerance level, coupled with a favorable monsoon outlook, further fueled optimism.Private sector banking, auto and CRAMS/CDMO space are the areas Shah is betting on.: One of the best things is that the market always climbs the wall of worries and we have clearly witnessed that in the last three months. In May, we had India-Pakistan tensions, in June we had Iran-Israel-US tensions and in spite of all of this, if you see the quarter, at the indices level, Indian equity markets have delivered almost 10% to 12% gains in April, May, and June. I am sure company specific, smallcap indices have actually done even better.If I have to think about what has actually played out, there are two or three very important things. One of the most important things in terms of our confidence from the regulators is for our inflation, for our GDP growth, and the support from the RBI policy and also support from the government side. Another very important factor which has always been a challenge for the Indian economy has been oil prices.In spite of the Middle East tensions, oil continues to remain significantly below $80 which is typically our tolerance level at India GDP or absorption capacity. It is a good 15-20% below that level. So, RBI support on the liquidity side, the interest rate scenario, and the oil prices remaining very subdued and on top of it, of course, the monsoon outlook – all of this seems to be playing out quite well.So, whatever challenges we have seen in the last two or three quarters as far as slowdown in consumption and slowdown in the GDP growth is concerned, hopefully that all will be taken care of and we will see a decent amount of revival with all the factors that are playing out right now in the next two to three quarters. So, the outlook being much more optimistic is giving buoyancy to the markets.There are two parts to your question. One is in terms of where the sectors are relatively undervalued and also, maybe not very undervalued but where the growth outlook seems to be very secular, much stronger as we move ahead over the next couple of years. So, from a valuation perspective, clearly what we like at this point in time is the private sector banking. We believe that some of the leaders are very reasonably priced and will be able to manage this pressure on the NIMs after this one or two quarters and they will again bounce back very strongly as far as the profitability and the bottom line growth is concerned.I do not think there is any challenge anyways as far as their deposit or credit growth is concerned and that will continue to do well. But maybe a couple of quarters here and there, in terms of profitability, but that should also be taken care of because the kind of the strong franchises that they have and the valuations are very reasonable over there, so that is definitely one of our top betting sectors at this point in time.Even within the auto space, although currently monthly numbers are somewhere between subdued to not so great, but thanks to the RBI policies and the liquidity coming back in the markets, we expect that sometime around the festival season, demand should come back very strongly. But over there, the more important thing is to play the premiumization story. It is not just a pure volume game, and so we will have to look at the value growth rather than just the volume growth there. Also not only value growth at the top line but value growth for profitability because typically the premiumization story gives better profitability. The EBITDA growth will be far better in some of the businesses out there.Auto is another sector where we believe risk-reward is favourable although near-term, there may be a subdued kind of volume numbers. Other than that, it's the next two-three years kind of a secular story. The themes that we have been liking for the last three-four years. We believe it still has long legs. One is, of course, contract research and manufacturer, the CDMO space particularly in the pharma side.So, in the CRAMS and the CDMO space, some of the companies have tremendous tailwind whether it is China plus one, whether it is Europe plus one. All of that seems to be now culminating into really strong order books and order inflows and execution will continue over the next 6, 8, 12 quarters and we can clearly see that with the kind of the capex that is happening at the ground level for some of those companies. That is a very big secular thing that should continue for at least the next two, three, five years. The other one is also in terms of the manufacturing sector companies which are focused on both the domestic and the export side. These are some of the themes that we are quite positive about.The way to look at it is that this tariff is a relative game because the tariff is not only for India, but it is also going to be for multiple countries and at least in the first round of tariffs that we saw, clearly India was much better positioned. Of course, after that a lot of negotiations continued to happen and I am sure things will get better only.But the more important thing to focus on is what is the value proposition that our companies offer to the customers, particularly in the US or the European markets, and if we are really giving them a great value proposition? For example, whether it is textiles, electronics manufacturing, or engineering, and within that hardcore engineering or some of the power equipment and then the auto and auto ancillary and contract research and manufacturing and specialty chemicals?At least in these six or seven industries, Indian corporates have demonstrated that they have the domain expertise and they can deliver the scale to meet the global demand and they respect intellectual property rights. So, we have earned the right to win there and clearly over there, with the value proposition that our companies have, the tariff if at all, will be a pass through to the customers over there because these businesses are not making some crazy kind of ROCEs or ROIs where they can absorb this.It is going to be a mutual understanding between the end customer and the Indian manufacturer how to manage this. But because we have a strong value proposition relative to any other competitive countries, at least the six-seven industries have a very strong outlook for the next three to five years.