In my post yesterday (see here) I mentioned that most of the sectors popular with small investors (…and also fund managers) are witnessing growth challenges. Though a majority of market analysts are expecting an earnings recovery from FY27 that should further accelerate in FY28, after two years of stagnation, uncertainties still persist with regard to (a) the resumption of a sustained uptrend in the Indian equities; and (b) likely leadership in the expected up move. Regardless, it is a good idea to prepare the ground and sow the seed well in advance.
In my view, resumption of the up move in the Indian equities may be led by a combination of domestic factors like easy liquidity, stable rates, improvement in rural income and higher urban household cash surplus, stable macro environment, acceleration in earnings growth, etc.; and improved external environment, e.g., settlement of trade issues with major trading partners, easing geopolitical concerns, improvement in trade balance, and reversal of investment flows, etc.
Therefore, in my view, the investors’ positioning ought to be based on domestic growth drivers which are adequately supported by a favorable global environment. I have shortlisted the following areas for finding future leaders.
a) Industrial companies with market and technology leadership, strong brand equity and access to global markets. Product companies rather than services companies are more preferable. Select companies with substantial operating leverage.
b) Technology companies (product and services) that may benefit from fiscal incentives.
c) Consumer companies both in staple and discretionary space which may benefit from higher disposable income, stable global economy, favorable tariffs, and stable prices. In particular, healthcare companies (product and services) are more preferred.
d) Local units of global corporations that may see larger participation through more investment, hike in stake or transfer of manufacturing operations for regional exports, as the tariffs lower.
e) Financials will inevitably participate in any bull market. Better asset quality, better yielding bond portfolio, higher credit demand, geographical spread due to deeper financial inclusion efforts, and improved capital adequacy recapitalization are some of the factors that support financials. Focus on large banks and NBFCs.
f) Stable prices is one of my core investment premises. I would therefore avoid pure commodity plays. However, there are several companies that are transforming from a pure commodity company to a (value added) product company. Such companies offer interesting investment opportunities.
g) I shall be size agnostic in selection of companies. In fact, the growth could be much higher in several small and midcap companies that have a technology edge.
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