Midcap bull Sunil Singhania on 5 themes to bet on under NDA-2
Last five-year’s returns show midcaps and smallcaps have done much better than Nifty, says Singhania
You are a compulsive midcap bull. It comes naturally to you.
Yes, because in the past, it has been so profitable compared to the largecaps.. Last five years, Nifty has given 52% return. Actually, despite the last one year of challenges for mid and smallcaps, if you see last five-year’s returns, midcaps and smallcaps have done significantly better than Nifty.
There is more volatility but we are a growing nation. There are new themes which will come up. Smaller companies are entrepreneur driven. They have the passion to grow faster and in smaller sectors, the government also does not interfere. So they naturally grow faster.
If consider the next five years are going to be transformational, and this is a segment which no one should ignore. It is possible that for three-four months, nothing will happen but you can never time them to perfection and the time to buy is when no one is looking at them.
You have always said that as an investor, you aspire to buy a smallcap which could become a midcap and a midcap which would become a largecap. Let’s go five years forward and discuss the NDA-2 regime. Which small and midcap businesses, themes or ideas have potential to migrate to a higher level so that small could become mid and mid could become large?
I will give my perspective. The new or the second term of the government would focus a lot on infrastructure which is their stated objective -- road for all, housing for all, connection of rivers, more airports. Infrastructure is really going to be there.
The other thing is it is becoming a more efficient sector. So I would say that some of the larger or more stable EPC companies are worth a look. Cement obviously since it has moved up. But whenever you get an opportunity, it is the ancillary sector that should do well.
The government objective is to double the farm income, improve prosperity and so obviously consumption as a theme cannot be ignored. You have to look at companies which can grow faster like discretionary spending. It is not what you are already doing where the penetration is low. NDA-2 would be a big thing. A lot of work will be done on the agricultural side. So whether it is more income, more irrigation, more resources -- nal mein jal (pipe water) is a slogan -- they have a lot of focus on water.
Financial services has undergone a lot of issues over the last 12 to 18 months but our internal estimate is that now more or less 90-95% of the NPAs have been adequately recognised. There will be new incidents coming here and there, but by and large, that sector is now set to focus on growth and big money is made when growth happens. So financial services companies which have balance sheets that can grow can be considered.
These are the four-five themes which you can look at. On the export front because of this trade war, if the government focuses on labour reforms, -- then some of the labour intensive industries whether it is garments or shoes or chemicals and even pharma -- which are dependent on exports but which also needs a little bit of labour reforms, would be very exciting also.