ETMarkets Fund Manager Talk: Banking, EV, defence among 6 themes this smallcase manager sees playing out in 2023

The various measures and initiatives taken by the government to give impetus to ‘Make in India’ bodes well for several domestic-oriented sectors.

In this backdrop, banking, electric mobility, infrastructure, and defence are among the six themes that are expected to play out in 2023, said Abhishek Jadon, smallcase manager and vice president at Windmill Capital. Edited excerpts:


How has your smallcase performed in 2022?
With geopolitical tensions dominating the major part of the year, it is heartening to see the resilience our smallcases like ‘Brand Value’ and ‘Value & Momentum’ have displayed, as far as returns are concerned.

These smallcases have managed to beat their benchmarks. Despite inherent underperformance in the smallcap space, the volatility for such smallcases were much lower than the markets.


Which were the new sectors you entered in this year and which are the sectors that you would want to look at next year for an investment opportunity?
Specialty chemicals - The sector is set to benefit from China+1 strategy and possibility of coverage under the PLI scheme. The Indian chemicals industry has the opportunity to present itself as an alternate destination for production of major chemical raw materials.

Electric mobility - The government’s push has moved the needle and a lot of incentives have been provided in order to nudge the common public folks to buy an EV. This is definitely an interesting space to look at, with major infrastructure development taking place.

Infrastructure - A strong impetus from government policies is one of the main growth drivers for the infrastructure industry in India, coupled with a strong capex environment.


Automobile - The pain points around the supply side have been easing out for automotive manufacturers. On top of that the demand pipeline for auto companies is very strong, which is an additional factor to have confidence in this sector.


Banking - Strong credit off-take in tandem with rapid asset quality improvement is a deal maker for the sector. Deposit rates have also been healthy for major private players. It is expected that the banking sector will continue to ride on the tailwind of asset quality, less provisions, and strong credit offtake.


Defense - India’s military spending is the 3rd largest in the world with the FY23 Budget pegging it at $54 billion. Until 5 years ago, we were largely importing our defense needs. However, things have begun to turn around. The government’s focus has shifted towards indigenisation, wherein domestic players are not only servicing domestic orders but also exporting overseas, which explains the surge in exports.


How is 2023 looking up for the retail investor community? Do you think it would turn out to be better than 2022?
As long as there is volatility in the counter, it will not turn out to be a smooth ride for investors. While it’s too soon to speak, a fresh rise in COVID-19 cases in China might act as a spoilsport for equity markets, both globally and in India.

Not to mention, the impending recessionary loom over US, UK, and other European economies might add volatility.

That being said, India has shown tremendous resilience against a bleak macroeconomic environment. The markets may remain range bound unless the aforementioned issues subside.

If an investor today wants to invest Rs 10 lakhs, what is the kind of portfolio you would recommend him/her for 2023?
To anyone who wishes to invest a certain sum of money, our thought process always revolves around the concept of core-satellite approach.

Just like having a strong core is very important for building a healthy body, asset allocation in a diversified passive core strategy, as a part of your overall investment portfolio, is also very important.

The way it works is, core optimizes for capital protection, while satellite optimizes for capital appreciation. It goes without saying that the former is a safe bet, while the latter is the risky one. Therefore, in order to build the core portfolio, one can consider investing in the ‘All Weather Investing’ smallcase, which is one of the safest portfolios.

For satellite, one can consider investing in some emerging themes like electric mobility or quantitative portfolios like momentum, low volatility enhance the chance for fetching higher returns.

Many smallcase and PMS funds had reduced exposure to export-oriented sectors such as IT this year. Given the recession fears in the US and Europe, will they remain out of favour or would you buy the dip?
Given the unfavourable scenario IT companies have found themselves in, the problem is just not restricted to recession fears, but also the fact that firms across the world are cutting down of their IT spends. This is because businesses want to cut costs in order to maintain their margins, they don’t have any resource bandwidth for discretionary spending against the current economic conditions.

The public sector space did really well in 2022, particularly rail PSUs. In the run-up to the Union Budget, would you recommend adding any stocks despite the run-up we have seen?

The PSU frenzy is gradually gaining ground, especially banking and industrial PSUs. We have select PSUs in our smallcases as well, like Mazagon Dock Shipbuilders, Cochin Shipyard, Canara Bank, and others, which have done really well since inclusion in our portfolios. There is valuation comfort in some PSUs, in spite of the recent run up and because of this fact they may see some more upside in the months to come.

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