ETMarkets Smart Talk: Manufacturing will remain under spotlight for next 10 years, Anand Shah explains

In an interview with ETMarkets, Shah, said: “The resurgence of the manufacturing sector will be very beneficial to banks. Banks will have opportunities to lend to the manufacturing sector when its capex cycle begins” Edited excerpts:

What will drive Indian markets in the year 2023? Will earnings be the focal point or what US Fed does in terms of interest rates?

Strong corporate financial performance in Q2FY2023, lower than anticipated US Consumer Price Index (CPI) inflation, and declining crude oil prices have all contributed to the Indian equity stock markets’ resiliency.

India’s trailing P/E ratio as of November 30, 2022, was merely 4% above its 10-year mean, notwithstanding the surge in Indian stocks. Over long term, it is the earnings growth of the underlying companies which gets reflected in the equity market.

Thus, in the long run, earnings matter the most. Compared to a few years ago, when growth was sluggish, we are now more positive about the rate of total earnings growth for India Inc.

Having said that, short-term market fluctuations may result from developments related to the US Federal Reserve and other international central banks.

Our primary goal is to find businesses that can benefit investors over long term on a risk-adjusted basis, despite the uncontrollable of geopolitics, commodity prices, central bank activity, etc.



Indian market record highs while the world is playing catch up. How do you see FIIs approaching Indian markets in 2023?

India experienced net outflows of US$37.13 billion between October 2021 and June 2022, but positive inflows of US$10.69 billion occurred between July and November 2022.

We believe this trend will persist because India continues to be a structurally healthy economy within the basket of emerging economies.

While there are challenges on the global economic front in the near term and the Indian economy too can come under pressure over the medium term, we draw comfort from the fact that India’s economy is expanding steadily on the back of demographics and manufacturing-recovery led by reforms at various levels.


What is your take on the September quarter GDP data?
India’s GDP growth slowed to 6.3% in Q2FY23 from 13.5% in Q1 due to the base effect, but the country’s economy nevertheless managed to grow by 9.7% in the first half of H1FY23, demonstrating its resilience.

We believe global growth and India growth will bottom out over the next 2 quarters and will start picking up as the negative impact from high commodity prices and the China lockdown eases.

Top 3-5 factors according to you which could derail the bull run on D-St?
Geopolitical issues, action from global central banks to control inflation, rising interest rates and resultant domestic consumption demand are some of the factors which may play a role in the direction of the Indian equity markets in the upcoming months.

Apart from that, domestic flows into equity markets have also been significant support to markets and any reversal on that front can also impact markets in the short term.

Where do you see smart money moving (over-owned to under-owned sectors)?
Domestic manufacturing, manufacturing allied industries like logistics, metals, cap goods, industrial products, banking, and financial services, as well as select consumption ideas like telecom and real estate are the areas where we see risk reward is superior.

We see better earnings growth, improving RoEs, and reasonable valuations in select companies in the above sectors.

Do you see pressure on the rupee to continue in 2023 as well?
The REER, which is above 100, is indicative that the exchange rate is slightly overvalued. In the coming year, we believe the Rupee will remain largely stable at its present levels against a weakening US Dollar.

Do you see India-focused sectors doing well next year?
Over the following ten years, we believe the manufacturing industry in India will be under the spotlight.

Positive changes in the manufacturing sector, fueled by increased production capacity, government policy support, China+1, Europe +1 opportunities in manufacturing exports, more M&A activity, and PE/VC-led investment, are laying the groundwork for the nation’s future economic prosperity.

The government’s PLI Scheme has significantly enhanced the manufacturing environment in the nation.

Additionally, the resurgence of the manufacturing sector will be very beneficial to banks. Banks will have opportunities to lend to the manufacturing sector when its capex cycle begins.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)