Earnings Contribution To Come From Capex-Driven Sectors, Says JM Financial's Vinay Jaising
Jaising bets on the railways and capital goods sectors in addition to the defence sector.
India is poised to outperform the global market, including emerging markets, in the next six to 12 months, according to JM Financial Services Ltd.'s Vinay Jaising.
Earnings contribution will largely come from the capex-driven sectors, Jaising, managing director at JM Financial, told BQ Prime's Niraj Shah. The Indian government has amplified its budget allocation for capex in various domains—including defence, water, roads, and railways—by about 5.5 to 6 times, he said.
"In the case of railways, they have increased it by about 7 to 8 times. In the case of water, they have increased it by 8 to 9 times. In the case of defense, they've raised it by about 2.5 times," said Jaising, who also co-heads the portfolio management services at JM Financial.
"Their bottom-line growth is going to be highly operationally levered, and we'll see a lot more growth coming in from these companies ... It is a nice time to be in capex-run companies."
Within the public sector space, railways and capital goods are the key areas that Jaising is betting on, in addition to the defence sector.
Outlook On Banking
The earnings growth of India Inc. in the last two to three years was largely driven by the financial sector showing incremental growth of 40-50%, making up about 30-35% of the indices, Jaising said.
Previously, a significant portion of the index growth was attributed to the banking sector, he said.
The primary reason behind this phenomenon was the impressive growth of the loan book. The Covid-19 provisions, which were being made earlier, are being tapered off and because of this, the banking results have started to decline on a quarter-on-quarter basis, he said.
In the long-term, the banking sector will experience growth in its loan book, with a 10-15% increase in top-line growth and a similar percentage for bottom-line growth over the next three years, according to Jaising.
However, the banking sector is not expected to be the top performer in terms of earnings contributions, he said.
