Infrastructure To Be A Winning Bet For 2014

Prakash Diwan
Director
Altamount Capital Management

All that I have learned in my short journey of over two decades in the capital markets of the country is that it is never too long! Every day of this journey comes with its share of trials and tribulations and ample learning as well. In comparison to some of the more developed markets, India offers a fantastic ride to the participants as an evolving market with tremendous potential. Little wonder then, that the denizens of the global financial markets – ranging from the risk-taking investors in USA to the relatively reticent ones from the Nordic region – have found our markets to be a land of opportunity.

This journey of mine had a humble start in the banal world of Hire Purchase and Leasing with an NBFC, eventually drifting into the realm of Investment Banking at a leading constituent of our capital markets in the heady days when IPOs were seeing what was probably the biggest boom in our markets. The entry into the capital markets led me further into the difficult and fledgling world of mutual funds, which is fashionably referred to as the buy side, before I jumped across the fence into the sell side, where institutional broking spread its swathe. But be it marketing IPOs, mutual funds or stocks to institutional or retail investors, staying away from the capital markets has never been easy once you are bitten by the bug!

My philosophy towards investing remains practically simple – buy what you understand, and if you do understand it better, stay invested. Given the high number of under-researched businesses in India, looking where others have not yet ventured is easier than what it seems like. My belief that India is a world of successful smaller businesses that have now started scaling up global maps is primarily responsible for the bias towards Mid-Cap stock selection.

The current investment climate is as promising, as you would expect from any emerging market in today’s globalised environment. There are ample good opportunities and every segment of investors, be it retail, traders or long-term institutional investors, would have enough to chose out of. Never before has such a wide range of choices been available before, and this trend would only grow in the years to come!

The key focus during 2014 would be stories within the beleaguered infrastructure space. We have ridden the consumption theme for our markets quite effectively for the past couple of years – it’s possibly the turn of the other leg of the India story that should emerge as the winning bet in the next few quarters.

Apart from the clarity on the political front, the plateauing-off of interest rates would trigger a significant change in cost structures for most businesses in our economy, and hence, a re-rating of sorts for those businesses which come off the danger zone earlier than the rest. There are enough moves by most forward-looking enterprises in the country to have started working on enhancing their strength globally, and those who emerge out of this trial by fire earlier will be rewarded disproportionately.

Important sectors to watch out for in 2014 would be technology, pharma, banking and capital goods. On a secondary level, export-oriented or import substitution plays too would be equally rewarding. Top picks in these sectors would be McDowell, Cox & Kings, Hinduja Global Solutions and Trent, to name a few.

Our advice to investors is to look at equities only if you have the stomach for volatility – remember, buying into a stock is akin to partnering the promoters in the business, and there are few businesses that would be devoid of ups and downs, especially when the world is in such a stage of turbulence. Having put your faith in a particular business (stock), do not waver. Take time to select stocks, but don’t get impatient with those once invested!