Emkay Global's Nirav Sheth Sees Disconnect Between Corporates And Investors

While companies are confident about growth, investors remain sceptical about valuations, according to Nirav Sheth of Emkay Global Financial Services.

"I see a big disconnect between what the corporates and investors are seeing. Most of the companies are fairly confident about the growth outlook. Broadly, the investors are skeptical probably with context to the valuations," Sheth, chief executive officer of institutional equities at Emkay Global Financial Services, told BQ Prime's Niraj Shah.

He highlighted insights from a three-day investor conference organised by the firm, which saw participation from around 150 companies.

"My sense is India will be like Germany. In the next five to ten years, we are likely to see India having a plethora of 300-400 odd niche companies that can do very well."

Sheth said he found companies to be confident and sensible about capital allocation, while banks are looking at credit growth. According to him, barring software, sectors like infrastructure, electronic manufacturing and banks have been doing well.

"Markets are discounting the robustness of the economy," Sheth said, highlighting the progress the country has made in terms of macro fundamentals like services output, moderated inflation, and improved current account status. He sees bright prospects in the infrastructure sector, especially in power generation and distribution space.

The government's relief package announced during the pandemic, though initially disappointing, has been wise and resulted in lower inflation as compared with developed economies, he said.

"Our economy is growing faster than anyone else's and it is possible India in the next few years will be current account neutral. India has a great chance of resetting its numbers. I am very confident on the economy and on the markets."

In terms of Emkay Global looking at investment in companies that are seeing a market rally, Sheth said the only way to sense the risk is by the size of the bet. Investors should look at whether the industrial prospects are good, are they confident about the return ratio, and will the addressable market keep on expanding, he said.

"If you want to buy into the India story, you need to have a diversified portfolio. This is not something that comes naturally to stock pickers because we want to bet your conviction into stocks. Instead of letting go of opportunities like small caps and high valuations, do your research since there are diverse opportunities," Sheth said.

According to him, there is a chance that markets will correct over the next few months.

The cement sector has surprised on the upside with volume growth rates above 18% even on the back of a strong previous fiscal, Sheth said.

"This year, it is likely to be a volume growth rate and no one will raise prices, but next year we have an opportunity to increase prices. The analysis is behind the curve in terms of long-term growth rate in cement," he said.

Sheth highlighted that growth momentum in infrastructure takes time and projects have a five to six year gestation period. But when the template is set, the growth happens for a long period, he said.

Sheth said as the credit loss of banks taper off, the markets will reprice the risk.

"They (markets) will appreciate that the external credit loss is 2% ... Just because the asset quality is great and therefore, the loss has to increase, I am not a buyer of that," he said.

Sheth expects banks to remain an important part of the growth cycle for a long time, he said.

"It is time to look at private sector banks as well, including the larger ones. That's one of the sectors where valuations are below pre-Covid levels ... I believe there will be a very strong return in a very short time."