“We think manufacturing will be a key wealth creator for the next 5-10 years and may need a separate dedicated strategy,” Vikaas M Sachdeva, CEO of Emkay Investment Managers, said in an interview to Moneycontrol.
Emkay believes the next 5-10 years would belong to manufacturing just as the previous two decades belonged to services.
On themes, Sachdeva said, “We are looking at consumer discretionary like auto original equipment manufacturers and building materials, and we are looking at export themes like auto ancillaries and pharma.” Edited excerpts:
Do you think the manufacturing sector is going to play a crucial role in India’s GDP and will attract more Foreign Direct Investment (FDI) in coming years? Also, is it a wealth creator?
We believe that the next 5-10 years would belong to manufacturing just as the previous two decades belonged to services. Driven by the holy trinity — financially and operationally buoyant manufacturer, supportive government, and robust bounceback in consumerism – – manufacturing will take its pride of place in GDP as well as indices.
The manufacturers have seen their cash return on capital employed (ROCE) expand to FY03-06 peaks; their financial leverage is significantly lower and capacity utilisation is crossing 75 percent. The government has been supportive through relaxed taxation and production linked incentive (PLI) scheme. Consumer expenditure is experiencing a double digit rise, driven by robust incomes.
If we look at most indices as well as client portfolios, they are services-heavy. We think manufacturing will be a key wealth creator for the next 5-10 years and may need a separate dedicated strategy.
Do you think the bull run has started in auto segment and will continue for next 2-3 years?
We expect auto sales to continue to improve hereon. The key will be to look at companies which are profitably growing in the higher value product segment and in exports. We would say that auto ancillaries should also catch investors’ attention as they keep getting larger content share in vehicle costs by either adding products or expanding into the exports market.
Have the corporates made most use of the corporate tax rate cut (since 2019)?
If you look at the registration of new manufacturing companies, it has been inching up since 2019. Today a third of new companies registered are in the industrial sector. This is also supported by a 10x rise in environmental clearances granted to new companies. This means that corporates are taking advantage of the corporate tax rate cuts.
As an investor, are you really worried about the current inflation scenario and recession fears?
Inflationary pressures are clearly receding. Most base metals are down 11-22 percent versus their 2021 second half averages and thereby forming a favourable base for inflation. Crude oil prices are also partly impacted by cartelisation amongst OPEC+ countries as they are producing less than announced targets.
We believe inflationary pressures are reducing fast which will be very positive for a basic raw material consumer like India. The only thing that keeps us on alert is rupee, depreciation of which can also feed into inflation, but commodity prices have fallen like a pack of cards and mitigated the whole impact of rupee depreciation.
What are the five key factors that make you believe that the current rough phase is a just a speed-breaker and we are still in a long bull run?
Some of the structural changes during the 2018-2021 period are reminiscent of a lot of things that happened prior to 2003-06 boom, namely, tax rate cuts, lower interest rates, stable raw material prices, lower balance sheet leverage, and higher government expenditure
What are the themes you are looking at for investment now, which can be wealth creators?
We are looking at consumer discretionary like auto original equipment manufacturers and building materials, and we are looking at export themes like auto ancillaries and pharma. We are also looking at capex-related themes.
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Vikaas M Sachdeva
Chief Executive Officer, Emkay Investment Managers Ltd.
Vikaas is an industry stalwart with over two decades of experience. In the course of his career, he has held several influential and senior management positions across marquee financial service organizations. He has a broad range of interests across functions like sales, distribution, marketing, investment banking, product, and customer service.
Vikaas was the CEO of Edelweiss Asset Management Ltd, successfully turning around the business culminating in the acquisition of JP Morgan MF and was also the Global CEO of Enam Asset Management Ltd, where he oversaw both global and domestic side of the business. He has also worked with Birla Sun Life International AMC Ltd., and ING Investment Management (India) Ltd. He has been an erstwhile member of the Mutual Fund Advisory Committee (MFAC), a high-powered committee appointed by SEBI to advise them on governing the MF industry and he was also on the board of the Association of Mutual Funds of India (AMFI), heading the ETF and indexing committee, which submitted the first white paper on ETFs to SEBI. More recently he was associated with the Asset Managers Roundtable of India (AMRI), the nodal body for FPIs in the country. Currently, he is a member of the Advisory Committee of the India FinTech Forum.
