scorecardresearchOutlook 2023: Bullish on capital goods and banking sector, says Rajesh Kothari of AlfAccurate Advisors

Outlook 2023: Bullish on capital goods and banking sector, says Rajesh Kothari of AlfAccurate Advisors

Updated: 29 Dec 2022, 12:12 PM IST
TL;DR.
Kothari believes that businesses with solid balance sheets that can self-fund growth are poised to withstand a potential recession, maintain resilience, and gain market share while their competitors’ retreat.
Rajesh Kothari, smallcase Manager, Founder and CIO at AlfAccurate Advisors

Rajesh Kothari, smallcase Manager, Founder and CIO at AlfAccurate Advisors

The best way to preserve and grow client assets in a sustainable manner is by investing in competitively advantaged companies that have the potential to deliver continuous and robust earnings growth under any economic environment, says Rajesh Kothari, smallcase Manager, Founder and CIO at AlfAccurate Advisors in an interview with MintGenie.

Edited excerpts:

When did you start investing or trading in the equity market? What inspired you to enter into equities?

I have been in the markets for more than 25 years. My first encounter with the equity markets was back in school, when I got Vimal coupons by reading annual reports. The dynamism and ever changing nature of the equities is what lured me in, as I found it appealing to read about different companies and understand their business models.

Despite the global equities not performing well, India has managed to outperform the other emerging markets. Your views on it?

India is a bright spot in a troubled world economy. High-frequency indicators like GST collection, peak power demand, recovery in air travel, sales of apparel, QSR, auto, housing, capital goods, and improvements in capacity utilisation are positive. Rural India was adversely impacted in the first half, but we expect the situation to improve due to several factors, including a decline in inflation and a good season for rabi crops.

In our view, India is nearing a new capex super cycle, with private spending likely to coincide with ongoing public outlay. We believe that the capex stimulus stemming from de-carbonization, PLI, and China+1, implies fresh investments. On the profitability front, corporate India was adversely impacted during the last two quarters due to higher raw material prices and a resulting decline in gross margins.

However, as commodity prices have declined in recent times, we expect gross margins to improve from current levels. Hence, we believe that these factors support the corporate earnings growth momentum and provide cushion in case of a downside impact in a scenario where the world enters a slow growth lane in 2023.

Your favourite sector of the year and what returns have this sector delivered in 2022?

I am a strong believer of stock and sector diversification, as diversification is the only free lunch in finance. Thus, I have many favourites. However, to name one, capital goods is one sector which I like and continue to remain bullish on. The capital goods sector has performed well with many of our portfolio companies reaching all-time highs this year.

What is the sectoral outlook for next year?

We believe that the best way to preserve and grow client assets in a sustainable manner is by investing in competitively advantaged companies that have the potential to deliver continuous and robust earnings growth under any economic environment. In challenging periods like these, we believe that the strong get stronger.

In other words, we believe that businesses with solid balance sheets that can self-fund growth are poised to withstand a potential recession, maintain resilience, and gain market share while their competitors’ retreat. Within sectors, we believe that the capital goods sector is attractive as the investment cycle has just begun.

Our portfolio companies have witnessed the highest order inflow in recent times. We are also keen on the specialty chemicals sector as China + 1 is gaining further momentum. We are also positive on the banking sector, with expectations of significantly better asset quality of select banks and the rise in non-food credit growth.

What new year resolution should new and young investors adopt to bring investing discipline in themselves?

Remember - Rome is not built in a day. There are no shortcuts to success. Keep patience and focus on long term investment returns!

Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.

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Commodity prices and stock market
First Published: 29 Dec 2022, 12:12 PM IST