Newly emerging sectors are expected to offer higher returns over the legacy large-cap segments amid a stock market boom in India, according to Prateek Agrawal, chief executive officer of Motilal Oswal AMC.
The “next billion-dollar expansion” of the economy will come from newly emerging sectors, such as pharmaceuticals and solar renewables, the managing director said during a conversation with NDTV Profit on Tuesday.
“Newer emerging spaces, which were probably not there in the market five years back, are the spaces to look at,” he said. “They offer a meaningfully higher quantum of growth and the growth delta versus the index, which comprises legacy spaces.”
“That is where one needs to focus on and just like the 90s, this is the period of alpha. Alpha meaning excess returns over large-cap investors,” Agrawal said.
These spaces are not constrained by economic growth rates and the scope of expansion makes them more attractive, according to Agrawal. “A lot of these spaces are small, so they are not held back by the size of the economy and the economic growth.”
“These are the spaces that are driving the next billion-dollar expansion of the economy. These spaces held for a long period of time in a portfolio, not space per se, could deliver good outcomes for the investors,” he emphasised.
Agarwal picked capital markets, electronic manufacturing, renewable energy, electric vehicles, pharmaceuticals (notably GLP-1 drugs) and luxury goods as the sectors with high growth potential compared to traditional sectors.
He projected earnings growth for Indian indices at around 10%, slightly below the anticipated 10% to 12% in the near future due to base effects and lower advance tax numbers. The market expert argued that the Indian market is increasingly insulated from global volatility due to the strength of domestic investment.
“Increasingly, our markets are less linked globally. The FPIs, if you see over the last two years, would have put in close to net zero in the markets. It is domestic (companies) who have put in over $100 billion in the same period,” the top executive said.
Agrawal added that any sharp market downturn triggered by global events “always proved to be a great opportunity to come in”. Given the current policy of a weakening dollar and the prospect of global rate cuts, he advised investors to adopt a “growth style of investing”.
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