Energy, Manufacturing & Infra: The New Global Focus of India’s Bull Market, Says Nilesh Shah

A lot of focus so far has been on making things locally and replacing imports. What will change significantly now is that these sectors and companies will not just focus on India. They will start looking at the world as their market,” says Nilesh Shah, MD & CEO of Envision Capital.

Today’s a great day. It will be remembered as an important milestone for India’s long-term bull market. It’s exactly what the market needed, and we’ve got it. This is the beginning of the next phase of growth.

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What will change in the short term, medium term, and long term?

In the short term, we will see a bigger push for manufacturing. This has been a focus for the government and will continue to be, with more reforms and policy changes on the way. This will help solve many of India’s past challenges.

In the medium term, global investors will find it hard to ignore India. India will no longer be just an emerging market but will become a main market where they make larger investments. They have been worried about policy continuity, but now they will have more confidence.

Here’s what you can expect for the next five years: more continuity, stability, and a turbocharged policy calendar. This is something many people are looking forward to. Over the past decade, our bull market has seen massive participation from retail investors. Now, it’s likely that more global investors will turn their attention to India in a significant way. These are the two main changes I foresee going forward.

Let’s discuss the themes. During Modi’s first term, there was a strong focus on Digital India and financial inclusion initiatives like Jan Dhan, which have laid the foundation for India’s growth. In Modi’s second term, the focus shifted to Atmanirbhar Bharat (self-reliant India), manufacturing, and Production Linked Incentive (PLI) schemes. What could be the new themes and ideas in the next term?

If you invested in defense stocks during Modi’s first term, you might not have made much money. But those who invested in defense and railway stocks during the second term saw significant returns. It’s likely these sectors will continue to receive a boost. Yes, these areas didn’t yield returns in the first term, but especially after COVID-19, we’ve seen massive gains in these sectors, and I think this is just the beginning for areas like defense and space.

So far, there has been a lot of focus on indigenization and import substitution. What’s going to change is that these sectors and companies will not just see India as their market. Instead, they’ll start looking at the world as their market. Historically, no country has grown without industrialization and exports, and that’s the path we’re about to take. This is going to be a significant area of growth.

Nilesh Shah’s Thoughts

Nilesh Shah believes that India’s energy, manufacturing, and infrastructure sectors will continue to be the foundation of the country’s strong market performance.

He mentions that in the past two terms, there hasn’t been much progress with privatization. However, Shah is confident that this term will be different. He expects to see many state-owned enterprises go public and launch IPOs. Recent public sector IPOs have been successful and delivered good returns, boosting confidence in this area.

Shah observes a significant shift in investor sentiment, from fear and dislike to love and greed for these public sector companies. He anticipates more state-owned enterprises will improve their governance and go public this term.

Addressing the potential for profit-taking, Shah acknowledges that some investors might sell their stocks to take profits since the market has been performing well. This is a common reaction, especially among short-term investors who buy on rumors and sell on news. With the exit polls out and clear trends expected soon, some profit-taking is likely.

Thoughts on Long-term investors

However, Shah believes long-term investors will continue to invest in the market. He notes that, from a three- to five-year perspective, the market is still not overpriced.

Nilesh Shah thinks the stock market is still reasonable. There are some areas where stocks are priced attractively, and that’s where people will invest. He believes that systematic investment plans (SIPs) will continue to grow, maybe reaching Rs 50,000 crores or even one lakh crore in a few years. He also expects more money from wealthy individuals to enter the market.

Shah thinks that long-term investors won’t sell their stocks for a quick profit. They’ll stick around for three to five years, which he thinks is a good idea. On the other hand, short-term traders might sell for profit, but Shah believes the market can handle it.

As for where to invest, Shah still believes in the energy, manufacturing, and infrastructure sectors. He also likes areas with steady growth, like finance and premium consumer goods.

He thinks there are many opportunities in the market right now. India’s stock market has a history of big returns, especially in small and mid-sized companies. Shah doesn’t think it matters whether a company is big or small right now. It’s more important to invest in sectors that are doing well, like energy, manufacturing, and infrastructure.

To succeed in the current market, it’s important to stay focused on individual companies, their fundamentals, and thorough research. Whether an investment is in large-cap, mid-cap, or small-cap stocks doesn’t matter as much as understanding the business and its potential. Key factors include the business’s long-term prospects, its efficiency with capital, and favorable conditions for growth. If these boxes are ticked, the investment is likely to be good.

With a strong government mandate, there may be changes in investment focus. The government’s third term is expected to emphasize agriculture and manufacturing. Factories have made progress but more work is needed. Agriculture, particularly in rural areas, has significant potential for growth.

Investments might target companies benefiting from rural development or those in less developed parts of India. This includes businesses linked to urbanization in smaller towns and regions like eastern and northeastern India. These areas offer interesting investment opportunities.

Historically, markets react positively to government mandates initially, but this doesn’t always translate to sustained growth immediately. It’s often a case of “buy the rumor, sell the news.” The upcoming budget will be crucial as it will set the stage for economic reforms and policy changes. The first 100 days are expected to be critical, and what’s announced in the next 30 to 100 days will be very important.

In the near term, market performance will largely depend on earnings growth, which is projected to be 15-20%. If major policy changes and economic reforms are introduced, this could boost returns further. However, the market is likely to move in line with earnings growth over the next year.

As the immediate reaction to the election outcome settles, attention will shift to the budget. Key areas of interest will include taxation, privatization, divestment, labor laws, land acquisition, and the expansion of PLI policies to more sectors. These factors could provide a significant boost to the market.