Pankaj Murarka likes the current market as it provides an opportunity to pick stocks that have the potential to outperform benchmarks.
When excessive momentum is absent, indices tend to maintain a steady range with controlled movements, Murarka, chief investment officer at Renaissance Investment Managers, told BQ Prime's Niraj Shah.
This environment provides the opportunity to select stocks through analysis and generate substantial alpha, he said. "If you can identify the right stocks in the right pockets of the market, and given India's growth is strong, there are more than enough number of companies which are delivering strong growth."
In the past 18 to 20 months—starting around the middle of 2021—Murarka said he saw indications of an investment cycle and bought shares of companies like ABB Ltd., Siemens AG, Cummins Inc., and Larson & Toubro Ltd. During this period, while the index returned a modest 10%, these companies delivered 80% to 100%, he said.
"India's growth is at 7%, ABB is growing at 50% CAGR because the businesses in which they are—data centers, urban mobility, transportation, railways—all of them are growing at a phenomenal rate."
However, Murarka said investors considering mid- and small-cap companies should be careful. In this context, large caps appear to present a more favourable outlook for potential investors, he said.
Bullish On India's Internet Story
India's highest wealth creation will happen in the internet stock sector over the next 20 years, according to Murarka.
"By 2030, India's internet economy will be $1 trillion, and that's very significant ... If India's internet economy is $1 trillion by 2030, I bet you internet as a sector will be at least 10-15% of the Nifty index weight," he said.
"So, I think there'll be a significant value migration, as we call it, from an investor's perspective, from some of the other associated sectors into Internet sector."
Murarka highlighted the substantial range of opportunities available throughout the market. He also pointed out the current prominence of fintechs, noting that consumers' increasing reliance on technology to facilitate financial transactions has led to a notable surge in adoption.
"I think 20 years out, India's largest financial sector market cap company will be a fintech and not a traditional bank. So, the next HDFC Bank Ltd. is going to emerge from the fintech sector and not from a traditional banking sector," he said.
Other Pockets Of Opportunity
Information Technology
Murarka expects a shift in investment strategy regarding the information technology sector.
"IT is one sector where we've been underweight for almost 18 months, and now we're changing our stance. We're actually going over it because we think that the slowdown these companies witnessed in business is behind us. We're seeing initial signs of revival in IT spending from the U.S.," he said.
"We find valuations in the sector to be very reasonably attractive and valuations have moderated over the last 18 months."
Pharmaceuticals
The pharmaceutical sector has been an underdog, Murarka said. "We are overweight on pharma in our portfolios," he said.
Auto And Auto Ancillaries
Murarka said that over the last two years, after the Covid-19 pandemic, this space was somewhat constrained because of chip supply shortages.
However, Renaissance Investment is constructive on the sector as the supply chain is normalising and the latent demand in the overall auto sector continues to remain strong, he said.