ETMarkets Fund Manager Talk: SMC Private Wealth's 5 high-conviction buys for next one year

Backing India’s growth story, SMC Private Wealth is betting big on midcap stocks in the diagnostics, apparel, and construction sectors.

In an interview with ETMarkets, Ayush Aggarwal, chief investment officer at SMC Private Wealth, said that the structural reforms introduced by the Indian government have provided the much-needed boost to the domestic economy, helping India become one of the fastest growing countries in the world. The firm that offers portfolio management services (PMS) has Krsnaa Diagnostics, PSP Projects and Rupa & Co in its portfolio of stocks. Among largecaps, it is bullish on HDFC Bank. Edited excerpts:


Everyone seems to be bullish on the Indian market despite the global uncertainty. What’s your take on India?
I am definitely on the bullish side.

No doubt the aggressive and synchronized monetary tightening across the globe by the central banks has further weakened global economic prospects.

However, the introduction of structural reforms introduced by the central bank and central government at home continue to provide a much needed boost to the economy.

It is evident from the fact that some of the high frequency indicators such as GST revenues, auto sales and PMI among others have been continuously showing improvement. Even the credit growth continues to remain strong.

Thus, with India emerging as one of the fastest growing countries in the world with consistent rise in its GDP growth rate as compared to other economies, it is expected that India will continue to shine among its peers, and will always remain a favourite investment destination for foreign players.


In that case, what are the supportive factors for India to sustain premium over peers?
India will continue to sustain premium among its peers as the initiatives taken by the Narendra Modi government during the last eight years have borne fruit as is evident from the high frequency indicators and ever-increasing volumes of FDI inflows setting new records.

Besides, India is seen as an emerging manufacturing hub in global value chains, a growing consumer market, and a global leader in the digital transformation of government and private sector alike.

India's young population, its demographic dividend, gives India the potential to become a global production hub as well as a large consumer of goods and services.

India will continue to benefit from the "China+1" strategy. Even corporate governance practices are improving in India and there is a transparency in our system.

But do you foresee any downside risks for Indian equities over the next one year?
The weakening global macroeconomic condition, recession fear and geopolitical situation are the grave concerns for the domestic markets.

Recessionary fears present a weaker backdrop for global risk assets, and the global outlook remains abnormally uncertain.

The rise in crude oil prices will continue to swell the domestic inflation. A hasty policy shift by central banks to tame surging inflation (across the globe) is the biggest downside risk to the domestic markets.

Can you list five stocks that are an “high conviction buy” for the next one year?
We would like to list the below 5 stocks. A disclaimer that we have positions in the below stocks through our PMS.

HDFC Bank: It has reported strong performance in Q2. The asset quality continued to be best with a fall in restructured loans.

Krsnaa Diagnostic: It is one of the largest differentiated diagnostic service providers in India. The management expects to grow its revenue by 2x and net profit by 3x in the next 3 years, and believes to achieve 25%+ RoCE (return on capital employed) next year.

Rupa & Co: One of the leading and largest knitwear brands in India. Rupa is expected to grow strongly because of expanding distribution reach, foray into exports, and focus on premium categories.

PSP Projects: One of the prominent contractors offering a diversified range of construction and allied services. Its focus remains on industrial, institutional, government, government residential and residential projects.

Embassy Office REIT: Management expects office demand to benefit from high request for proposals (RFP) given the talent pool, well-established ecosystem and consolidation of the players.

Which sectors according to you are likely to underperform over the next one year?
If we talk about the underperforming sector over the next one year, sectors such as pharmaceuticals, oil & gas and midcap IT come to my mind.

There is no great visibility for the pharmaceutical sector on the demand coming through. Pricing pressures in the US market, rising raw material costs, regulatory headwinds, uneven growth in multiple segments in the India market will continue to exert pressure on the sector.

For the oil and gas sector, the fear of recession across the globe is likely to weaken the demand. At home, further rupee depreciation can also act as a headwind for margins for the sector.

Midcap IT will remain in pressure on the back of global recession. If we look at the order book or order wins of most of the midcap IT companies, it could be seen that the demand has seen some slowdown.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)