Invesco India MF’s new Business Cycle Fund aims to drilldown below sector level to sub-segment level within sectors to identify businesses in their growth phases. Most large sectors including financials, healthcare, auto etc have diverse sub-segments, each with very different business cycles.
While the best ideas are those with good growth prospects and reasonable valuations, Aditya is also willing to look at high growth opportunities which may be a bit expensive, provided he believes the valuation de-rating prospects in coming years would be more than compensated by earnings growth to deliver healthy net stock price growth.
He finds NBFCs in a sweet spot now – with cost of funds likely to come down as the rate cut cycle commences, aiding better margins amidst healthy volume growth. These stocks are available at reasonable valuations, which make for a compelling case.
Cement companies are on his radar as pricing power can comeback, now that the industry has consolidated around 2 leaders.
Airlines, hospitals, chemicals, healthcare and consumption are some of the other businesses he would look to own in this new fund.
Financialization is a multi-year theme that is playing out and capital market oriented stocks are central to this story. They are not exactly cheap – but these are instances where he would be willing to pay a bit more for the best bets as their premium valuations can be justified by strong growth runways.
Structural changes cause certain businesses to go from growth to maturity and then decline over time. Auto is one such case, where EVs are the future and ICE is currently the present but may land up becoming the past. Understanding the phase in the cycle for each business thus becomes critical.
Aditya has identified 10-12 themes across different sectors to invest in, which will give the portfolio healthy sectoral diversification.
The portfolio will comprise 70% pro-cyclical bets and 30%counter-cyclical bets to bring a good balance.