You need to understand what’s happening with the investment cycle to truly appreciate the magnitude of the opportunity. Government has been spending around 2% of GDP from 2010 to 2020 (pre covid) on infrastructure – so that wasn’t really driving growth.
Private sector capex remained flat in absolute terms right through 2010 to 2020 at around Rs. 5.5 lakh crores – so it was reducing in real terms, dragging down growth. Real estate investments by households was also very muted through the decade.
Since 2021, Government spending has increased sharply from 2% to 3.4% (70% jump – Rs. 4 lakh crore increment). Private sector capex has increased to Rs.8.5 lakh crore and household investments in real estate has taken off. An additional 10+ lakh crore of investments annually is what is driving our growth and setting in motion a virtuous cycle that can last this decade.
Amit feels it’s not wise to exit mid and small caps in the quest for higher returns from large cos – must continue your SIPs and plans as earnings growth projections continue to be strong.
There is a stand-alone case for investing in large caps as valuations are reasonable and earnings growth should come in around 14-15% this year. Don’t expect re-rating from 20x to 22x as long as interest rate cutting cycle does not commence as yield gap currently (without rate cuts) does not favour upward re-rating of stock PEs.
Invesco India Large Cap Fund has turned in high 2ndquartile performance across 1 and 3 yr timeframes. Amit maintains an active bet size of about 50% of portfolio, in quest for alpha.
He prefers buying growth stories when they offer value –typically when they are coming out of a downcycle. IT Services is an example of such stocks at present. He is currently maintaining neutral weight, but would look at increasing exposure when he sees more evidence of green shoots on growth.
He also likes turnaround stories – he believes there are good stocks in the consumer discretionary space that look promising on this count.
He favours consumer discretionary over staples as the latter has already reached a fair level of penetration while the former is just getting started. Incremental household income will go towards discretionary rather than staples.