A Distinction Prateek Agrawal Suggests Equity Investors In India Should Make

“If you look at one-year forward valuation numbers, we are there on the expensive side,” said Agrawal, chief investment officer at ASK Investment Managers, one of India's largest portfolio management firms. “However, this thing [the pandemic] will pass, and if you look at financial year 2022-23, the EPS would be higher than what you saw," he told BloombergQuint. "Earnings in FY23 might be even better than what the current financial year would’ve seen had the pandemic not hit.”

Indian equities fell to their lowest in more than a decade after the Covid-19 outbreak disrupted global trade. But the domestic market has rebounded 35% since March lows. And while the number of confirmed Covid-19 infections has crossed 7.5 lakh and more than 20,000 people have died, the government is gradually easing curbs to resume economic activity.

Agrawal backs the decision. A longer lockdown would’ve resulted in an economic cost “too high”, he said, adding that it would have made the long term even longer.

But he is cautious too. While there are encouraging signs, more so in select sectors, Agrawal suggests taking “one day at a time”. “No one is saying that everything will be good after two to three months. Nobody is willing to commit that quarter two or quarter three is going to be good,” especially when the numbers (infections) are still increasing.”

He extends his distinction between short- and long-term bets to themes that investors can consider.

Cement is a sector that will transition well into the long term if an investor expects the government to boost national growth via infrastructure spend, Agrawal said. A heavy user of crude and coal, cement production costs reduce in the near term because of the low commodity prices, he said. And more than 80% of its demand comes from rural and tier-2 towns which are relatively in a better condition than large cities, he said.

“This is one space to my mind that can still show some earnings per share growth in FY21 over FY20,” he said.

Another benefactor of the relatively well-preserved rural economy is the agriculture sector. “The government has been very, very successful in shielding that part of the economy. Cases there have been lower so it’s business as usual there,” he said. Direct plays in the farm economy, according to him, includes investing in fertiliser, seed, insecticide and pesticide companies. Agrawal also expects two-wheeler, tractor and even consumer goods companies to do well but said that the sectors that are more closely related to agriculture will benefit more.

But agriculture-facing sectors, even when they’re doing well, are not growth intensive, he said. “While being exposed to this part of the economy is great for the time being, investors should be able to transition to the other parts of the economy when the Covid-19 situation improves.”

The agri sector has, directly and indirectly, 5-10% weight in ASK’s fund, much higher than its representation in the benchmark indices.

Watch the full conversation here for Agrawal’s take on lending and non-lending financials, and the one sector that will benefit if the government pushes ahead with Make in India.