The 2001 dotcom crisis led to a boom in infrastructure and industrials. The 2008 financial crisis led to a series of populist measures sparking a consumption boom. And now the Covid-19 crisis, according to Vikas Khemani, has sparked a sectoral shift, bringing wealth-creating opportunities for investors.
More specifically, manufacturing and information technology are the two sectors that will present such options over the coming years, the founder of Carnelian Capital Advisors told BloombergQuint in an interview. He advocated identifying such longer-term trends and tailwinds over trying to figure out short-term movements.
“Nobody can say how much revenue will come next quarter, next year. The only thing is that you see the tailwind, use that tailwind and sit on the right ship and you will make a lot of money,” he said.
The investment advisory firm was the first to spot the potential of specialty chemical stocks. In April this year, Khemani had expressed his bullishness over the long-term story of the real estate sector.
Now India, according to him, is on the cusp of a manufacturing boom. A combination of favourable government reforms, cost competitiveness, strong domestic markets and an anti-China sentiment across the world is creating a momentum for India's manufacturing sector—which contributes around 15% to the nation's GDP, second only to services. The manufacturing sector, Khemani said, will grow as India makes its space in exports market and works on import substitution.
Some of the key sectors that will benefit from this manufacturing boom include chemicals and active pharmaceutical ingredients, capital goods, consumer electricals and durables, auto and auto ancillaries, defence, footwear, metals and paper.
Information technology, on the other hand, is entering its fourth phase of boom, a note released by the advisory said. Digital spends are shifting from discretionary to non-discretionary as companies realise its importance to survive, it said. Companies are also under pressure to reduce costs, and thereby spend on IT, it said.
Khemani expects both large- and mid-cap IT companies to show revenue growth in high teens over the next four-six years, while their profits are likely to growth between 18% and 20% per annum. "This is a classic case of re-rating," he said.
But the note also highlights some risks that could change these trends. A global economic meltdown, a softening global stance against China, banking system risks, slowdown in reforms and a significant currency appreciation could be a risk to the current hypothesis, it said.