ETMarkets Fund Manager Talk: Contrary to consensus, Omniscience Capital betting on IT sector; here’s why?
Ashwini Shami of Omniscience Capital holds a contrarian view and believes that stocks in the IT space are trading at attractive valuations and that one must look at adding them to the portfolio.
“The US recession narrative is expected to change soon with Fed rate hikes nearing the end and would play out mostly in H1 2023. So we think that investors should look to allocate in strategies such as Omni DX which give a balanced exposure to IT exporters,” Shami, who is the executive vice president and portfolio manager at the global investment management firm, told ETMarkets in an interview.
Edited excerpts:
How is 2023 looking up for the retail investor community? Do you think it could turn out to be better than 2022?
With the inflation number trending down in the US we believe the Fed rate hikes are nearing the end. In the second half, we may see demand for a rate cut which will reorient the markets for a lower discounting factor.
On the domestic front, we see the new investment cycle setting in with corporates working on higher asset utilization. The government is delivering on the infrastructure side with a focus on investments to bring efficiency and remove roadblocks. These all factors bode well for the markets in 2023.
Which are the sectors that you would want to look at next year for an investment opportunity?
We continue to remain optimistic on the sectors where our investors have exposure currently. This includes IT, banking and financial services, defence, railway, power and select EV stocks.
Many smallcase and PMS funds had reduced exposure to export-oriented sectors such as IT last year. Given the recession fears in the US and Europe, will they remain out of favour or would you buy the dip?
Our view here is rather contrary to others. We believe that IT services companies are helping global corporations to go through digital transformation disruption and, hence, have a fundamentally critical role whether it is cloud migration, creating a digital customer experience or unleashing growth opportunities such as metaverse.
While these companies can potentially continue to grow at mid-teen levels, they are currently available at attractive valuations.
The US recession narrative is expected to change soon with Fed rate hikes nearing the end and would play out mostly in H1 2023. So we think that investors should look to allocate in strategies such as Omni DX which give a balanced exposure to IT exporters.
Obviously, any such allocation should be in line with the investor’s risk appetite and financial goals.
The public sector space did really well in 2022, particularly rail PSUs. In the run-up to the Union Budget, would you recommend adding any stocks despite the run-up we have seen?
We believe that Omni Bullet Train, which gives exposure to the railway infrastructure presents a compelling investment opportunity on the back of growth prospects and attractive valuations in spite of the 2022 run-up. The National Logistics Policy launched in September 2022 aims to lower the cost of logistics from 13-14% of GDP to less than 10% by focusing on efficiencies.
A modal shift in logistics away from roads and toward railways (60% from the current 30%) shall be the key to driving these cost efficiencies.
If an investor today wants to invest Rs 10 lakhs, what is the kind of portfolio you would recommend him/her for 2023?
Firstly, it is important to understand that this is not an investment advice and the model allocation discussed here is only a broad starting point which should be calibrated as per individual investors’ risk appetite and financial goals.
We believe that around 50% allocation should go into a core full market flexicap strategy which is well diversified across 25-35 stocks. The remaining 50% can be allocated to various growth vectors (~10% each) including Omni DX giving exposure to IT services, Omni Bullet Train to invest in growing railway infrastructure, Omni Power for exposure to extremely undervalued but structurally significant power sector, Omni Capital Enablers to invest in the financial services companies which are helping with the capital formation for the various infrastructure initiatives and finally, Omni Bharat Defence for the strong defence growth vector riding on the export and indigenisation initiatives.
How did your smallcase perform in 2022?
Omni DX smallcase which lagged the market in 2022, is positioned even stronger than before given that the portfolio companies have delivered strong double-digit fundamental growth and the outlook for their end market, i.e US economy has improved significantly now that the rate hike cycle is nearing its end as the inflation numbers in the US have continuously been coming down.
The digital transformation growth vector remains intact with multi-year growth potential.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
