With headline indices marching northwards in the last few months, one should remain cautious while picking buzzing sectors. Be selective in PSU stocks; defence sector poised for solid growth, says Ajay Garg, CEO of from SMC Global Securities.
Invenstors have been advised to focus on stocks with strong long-term growth potential instead of solely reacting to election results.
Ajay Garg, Director and CEO of SMC Global Securities is positive on Indian equities but suggests optimistic investors should have a long-term approach in PSU and railways stocks, while he remains bullish on defence as a theme.
Edited excerpts.
India is voting this year. How should an investor tweak their portfolio for this period and what is your view post elections?
General elections carry significant weight for the political landscape. However, this time there is optimism that the Modi government at the Centre would get another term of 5 years, meaning continuation of economic policies and agendas. Progress towards digitalization and continued policy push toward manufacturing/exports can be expected, given India’s increasing footprint in global value chains. No reforms will be a break from the past. In the recent interim Budget, it could be seen that the Finance minister has upped India’s capital expenditure outlay, keeping infrastructure in mind. Besides, the government will continue to invest in light of the nascent private capex and buoyancy in government revenues.
From stock market view, it is quite evident that this has been largely factored in after the outcome of state polls held in the last quarter of CY 2023. Investors should largely maintain their strategy, focusing on stocks with strong long-term growth potential instead of solely reacting to election results. Prioritizing quality stocks with robust management and corporate governance is crucial, emphasizing the underlying fundamentals and true intrinsic value of investments.
Moreover, the Indian retail sector, particularly in Tier 2, Tier 3, and Tier 4 cities, continues to drive economic growth, supported by increasing consumer spending and rising disposable incomes. The surge in the number of demat account holders, which stands at a staggering 15.14 crore, reflects growing retail participation in the stock market, indicative of a broader trend towards financial inclusion and investment literacy.
Additionally, the steady growth in Mutual Fund Assets Under Management (AUM) underscores investor confidence in the market and the attractiveness of mutual fund investments as a wealth-building tool. These factors, coupled with a resilient GDP growth rate of 6.8 per cent, paint a promising picture of India’s economic trajectory and investor sentiment in the run-up to the 2024 Lok Sabha elections.
Momentum in PSU stocks remains resilient. What is your take in the PSU counters?
PSU stocks have emerged as standout performers in FY24, generating wealth for investors by up to five times. As PSU stocks are known for their stability due to government ownership and backing, this can be a major positive factor, especially during volatile market conditions, which is why investors prefer the segment.
The Indian government has recently mandated dividend policies for PSU companies, making them more attractive to income-seeking investors. However, it’s important to focus on high-quality PSU stocks. Not all PSUs are created equal.
Careful research into the financials and future prospects of individual companies is crucial for making informed investment decisions. Therefore, before investing, one needs to do proper homework and invest in fundamentally sound stocks rather than following the crowd. While PSU stocks might not offer explosive short-term gains, they often provide gradual and sustainable long-term growth. Hence, we suggest that investors enter the PSU segment in a staggered manner and maintain a medium to long-term investment horizon.
Defence as a theme has been buzzing lately over the government’s push on self-reliance in this sector. How do you see defence after elections?
The “Make in India” initiative has extended to the defence industry under the BJP government, expanding beyond consumer goods and textiles. Government initiatives include reserving 75 per cent of the defence capital procurement budget for domestic industries in FY24, up from 68 per cent in FY23, issuing positive indigenization lists, and integrating MSMEs and startups into the defence supply chain.
The Ministry of Defence’s order finalization drive and success in defence exports, boasting a 20% CAGR, have propelled sector growth. Major orders with defence PSUs such as Hindustan Aeronautics, Bharat Electronics, and Bharat Dynamics have bolstered revenue visibility. Bharat Electronics, engaged in radar, missile systems, and military communications, recently collaborated with Larsen & Toubro, marking progress towards self-reliance. Bharat Dynamics, focusing on missiles and defence equipment, reported a 61.25% jump in net profit in Q3 FY24. Hindustan Aeronautics, an aerospace and defence company, saw a 9.2% increase in net profit in Q3 FY24. Thus with prudent strategies and robust government support, India’s defence sector appears poised for exponential growth, driving both economic and strategic advancements in the foreseeable future.
What is your view on the railways stocks in the coming months?
The government is spending an unprecedented amount of money on railway modernization and capacity upgradation. This spending is so vital for the country that the result of the election is not likely to change it in a meaningful way. India is poised to revolutionize its railway infrastructure development in the coming years with an ambitious agenda.
The plan includes several key initiatives such as the acquisition of 8 high-speed bullet trains, the modernization of over 1,300 railway stations, and substantial investments in 400 Vande Bharat trains and 3,000 new passenger trains over the next 5 years. The Railway Ministry was allocated a record Rs 2.4 lakh crore in budgetary support in the Union Budget 2023-24. A massive Rs 1.85 lakh crore has been earmarked for capital expenditure in the current fiscal. However, the Railways still need to iron out certain creases, especially concerning safety and on-time arrivals. Furthermore, significant progress is expected in the development of the dedicated freight corridor of India, which aims to handle 45 percent of the country’s freight. These endeavors collectively represent a significant sector CAPEX opportunity of Rs 50 lakh crore in railways, driven by a vast market. And if, as expected, the current government returns to power, the railway boom will continue.
Disclaimer: rojgarlive Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
