Sensex and Nifty witnessed a volatile year, from being at their lowest in recent years to setting fresh all-time highs, the journey has been thrilling. But as India steps foot into the recovery phase and tries to boost various sectors to reclaim its position as one of the fastest growing economies in the world, more opportunities are coming up for investors. Auto-ancillary companies, pharmaceutical companies and IT hardware companies could be the early beneficiaries, according to Sachin Shah, Fund Manager, Emkay Investment Managers Limited. In an interview with Kshitij Bhargava of Financial Express Online, Sachin Shah sheds light on how investors should capitalise on the opportunities that the market is throwing up.

There has been a lot of talk around the PLI scheme, how would you play such a theme?

The government has in total approved PLI schemes for 13 sectors, each of these sectors have a huge potential to either scale-up exports or replace imports with domestic manufacturing for internal consumption (Atmanirbhar).

The sectors that are eligible for the PLI scheme are Automobiles & Auto Components, Telecom & Networking Products, Advance Cell Chemistry Battery, Pharmaceuticals Drugs, Food Products, Textile Products, Specialty Steel, White Goods, High-Efficiency Solar PV Modules and Electronic/Technology Products.

We believe some of the auto-ancillary companies, pharmaceutical companies and IT hardware companies could be the early beneficiaries of the scheme.

We have seen banks perform well but the fear of NPAs has not gone away. Would you buy banks right now?

The recent quarterly results and management commentary reflects that the fear of escalated NPAs was a bit misplaced. Most of the banks have declared decent asset quality and are also confident that asset qualities should hold well even after the moratorium period.

We believe large private sector banks will continue to gain market share on a secular basis over the next 5-10 years.

Midcap and Small-cap stocks have been shining for the past few months. How should one make use of this opportunity?

CY2020 has been a year of change of trends in many ways, as compared to a narrow market movement of CY2018 & CY2019, the market rally is much more broad-based in CY2020, the BSE Small-Cap index has gained more than 23%, BSE Mid Cap Index is up 12% v/s the large-cap indices (Sensex & Nifty) up by 7% over last eleven months.

Even amongst the sectors, the Healthcare Sector & IT Sector have gained 50% & 40%+ respectively v/s banking, real estate, capital goods, power sector stocks losing 5%-10%.

The pandemic has played the role of a catalyst by bringing cost efficiencies and balance sheet discipline across sectors/companies. A slight tailwind in the economic growth (for which green shoots are already visible) and an uptick in aggregate demand will set India Inc for multi-year extraordinarily strong earnings growth trajectory.

The current quarter commentary from most of the pharma companies suggests that outlook for revenue growth & profit margins is decent, driven by domestic formulations market, global API demand shift from China to India and US generics markets witnessing stable pricing environment.

If Markets are to fall now, where should one look for safety?

Being volatile is the inherent nature of markets, what is under our control is to invest in fundamentally sound businesses managed by capable & honest management. This is what helps the portfolio deliver returns over longer periods of time.

Post the vaccine it will be a race to recovery for the next few years, how are you playing on that theme in your portfolio? 

We believe post-vaccine, the hospitality (Travel & Tourism) sector should come back very strongly. Even the Auto sector is due for an up-cycle after nearly three years of a low growth phase.

Financial Express Interview