Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now

You can switch off notifications anytime using browser settings.
Stock Analysis, IPO, Mutual Funds, Bonds & More

Bullish on capital goods stocks as India enters new capex cycle: Deepak Shenoy

ET Now|
Jul 01, 2019, 05.37 PM IST
Deepak Shenoy-1200


  • There's opportunity in mid and smallcap stocks.
  • India should give up fiscal deficit cap to prod the economy.
  • We are at the beginning of a new capex cycle.
Breadth of the market is in a bad shape but the top few stocks are doing really well. That is likely to reverse a little bit in the next few months as largecaps underperform and midcaps start coming back to life, says Deepak Shenoy, Founder, Capital Mind. Excerpts from his interview with ETNOW.

Budget is three more trading sessions away. But there is not much excitement and anticipation in the market?
Yes. The problem is this is a six months’ budget. I do not think people have very high expectations of it and I do not think such budgets showcase a big change in either taxation or in new policies because in six months you are going to get another budget anyway.

Secondly, the decision on the largesse that the RBI was supposed to give in terms of a big one-time dividend, will be coming a couple of weeks after the budget which probably indicates that the government may not be able to use that money or even know how much money it may have in order to be able to use it for spending. So the budget will not include anything coming from there. Both those factors lead to less excitement about it but usually most surprises happen when people do not expect them. Let us see if this budget has something interesting to tell us.

While the street is waiting with bated breath for what happens with the strategic stake sale in Zee, a lot of brokerages recently have been fairly bullish saying that is the key catalyst and ad revenue growth is looking fairly strong. But the balance sheet worries have not receded. What is your take given the way the stocks are performing today?
I am surprised by the way the stocks are moving. The promoter problems have now partly becomes Zee’s problems because Zee has on its own balance sheet now bought a Rs 150-odd crore of loans that have been given to promoter entities that do not really have a business of their own and therefore some of these relevant entities have even defaulted to mutual funds. So, it is not just the promoter’s problem now. It is partly Zee’s problem as well. This is not a favourable time and it will hurt their ability to find a buyer.

And of course they have to find a buyer fast. We have not seen a buyer situation happening here so I am a little worried in that respect. I do not think this is a good time to be buying the stock. I personally feel the woes of the promoters are going to come back to bite the company and unless they announce a buyer in the next two weeks, we will see more downside from here.

Do you really think that there is elbow room for the Finance Minister to really throw a rabbit out of the hat? Can she try and give leg-up to the economy which is facing a consumption slowdown along with being fiscally prudent?
They may not necessarily be fiscally prudent this year or the next but I would not be unhappy to see the fiscal deficit being a lesser concern and bringing the economy back on track. Already the inflationary levels that we used to see in the past are history. We are not anywhere close and we do have a problem with rural distress, with manufacturing slowdowns and some kind of trade issues. I believe there is headroom and a lot of disinvestment that should continue to happen.

There can be other changes that are happening. For instance, 5G spectrum auctions or a couple of other revenue sources. It would not be great if we see a populist measure like a minimum fixed salary to everybody per month. I would not like to see that. It is better to put money into infrastructure projects and scale up plans that they have built over the last four years.

There is fiscal headroom primarily because every other country in the world has given up its fiscal deficit limits in order to prod the economy -- be it the US, Europe or most of the other countries. Why should India not do this when we are facing similar corrections or potential contractions?

Is there anything that you are looking at as an opportunity either pre or post budget? Given the levels we are currently trading at, would you see momentum coming back?
There is still opportunity in mid and smallcaps. Gautam Shah of JM actually puts a very interesting charts, he talks about how the small cap Nifty ratio and I mean you should plot visually the levels last seen in 2012. Breadth of the market is in a bad shape but the top few stocks are doing really well. That is likely to reverse a little bit in the next few months as largecaps underperform and midcaps start coming back to life.

Specifically looking at the capital goods sector, which is likely to see a turnaround, because we are at the beginning of the new capex cycle. India has had a relatively bad capex experience in the last four years. Corporate leveraging has come down and we are about 20-25% lower in terms of leverage in absolute terms, for the corporate sector than we were in 2013-2014. This cycle has seen a pretty big stretch and I believe now that a lot more capex is coming on board now, capital goods companies will do well.

There is some initial signs of stronger real estate developers starting to see some benefits. So, I would look at that sector.

There is also midcap IT which has lagged largecap IT the last year or so. But again, their PE ratios are in much better shape. I believe some consolidations are underway and therefore some of those players are worth looking at because despite all the drama that happens, eventually it is a fact that unemployment is at a serious low in the US and they need more people and more outsourcing to happen at the small level.

Also Read

Some largecaps have become midcaps on way to becoming smallcaps: Deepak Shenoy

Deepak Shenoy: If you have another 20-30 years to live, what is 6 months' dip?

Don’t go for panic buys just because of one announcement by government: Deepak Shenoy

Keep cash in hand and go for stocks where it's like shooting ducks in a barrel: Deepak Shenoy

Crude at $70 no big worry, will be a challenge at $85: Deepak Shenoy

Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.

Other useful Links

Follow us on

Download et app

Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service