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India will witness investment-led growth in the next decade believes SBI MF with infrastructure, consumption and banking and financial services being the preferred themes for the long term.
Sharing the rationale behind picking these themes, Ruchit Mehta, Head of Research, SBI MF said in the recently released Periscope Yearbook FY 23-24, “After a decade of pain, Indian banking system is in good shape. The banks today are better positioned to cater to the loan demand for long-term projects. This, along with higher lending rates will lead to improved profitability for the sector.”
Further, Government’s focus on infrastructure projects along with global demand will create higher demand for resources which in turn will lead to new capacity creation and boost the infrastructure sector.
Simultaneously, the consumption sector will gain momentum from the expected growth (9.6% CAGR till 2030) of affluent and middle households combined with low penetration of most consumption items.
However, on the equity front, the fund house holds a neutral view across market caps. R. Srinivasan, CIO, Equity, SBI MF explained, “Large caps have reversed their underperformance to mid and small caps. Directionally, there isn't any substantial argument in favour or against large caps.”
He added, “Mid and small caps have had sharp swings in performance, settling down to a neutral zone. We continue to favour a bottom-up strategy, focusing on long-term earnings compounders. Multi-baggers will continue to emerge from this space.”
In the case of the debt market, Rajeev Radhakrishnan, CIO, Fixed Income, SBI MF believes government bond yields remain attractive both on relative and absolute basis, in spite of near-term challenges. He listed tighter domestic liquidity, external volatility and larger supply as near-term challenges.
Overall View
Equities and fixed income - Gaurav Mehta, CIO, Alternatives, SBI MF picks bonds over equities and shares his short term and long term views.
Short term - Given the weak growth backdrop, investors may seek style diversification. Quality and defensives may find favour again in equities whereas higher absolute carry, peak in tightening cycle and visibility on positive real returns make fixed income attractive as FY 23-24 starts.
Long term - Low global real rates, tolerance for higher inflation and an expanding economy should characterize the equity environment and pro-growth themes (cyclicals, value, small caps) should be well placed. In the case of fixed income, improving government finances and monetary policy’s focus on anchoring inflation to mid-point provides sufficient ingredients for lower nominal yields.
Economy - Namrata Mittal, Chief Economist, SBI MF believes that low labour cost, friendshoring and China+1 have started to work for India and have the potential to benefit many sectors. She added, “India has witnessed a long period of underinvestment (since FY2012). Low investments along with higher capacity utilisation makes a case for a capex revival in India.”
However, India cannot be decoupled from global backdrop and global growth headwinds could lead to some temporary pause in corporate capex cycle.
Also, weak global growth, lagged impact of tightening monetary and financial conditions could drive India’s growth down to 5.5% in FY 23-24.
