Vikas Khemani Sees One Sector Surpassing Banking In Wealth Creation

Post Covid-19, technology has brought a dramatic change, Khemani founder of Carnelian Capital Advisors, said in an interview with BloombergQuint's Niraj Shah. "It is the only sector where demand is global and supply is local, with only 8-10 Indian companies having the capability to cater to such demand," he said. The orders are rising at such a pace that these companies have found it difficult to keep up, he said.

The demand for technology solutions will help the sector leave behind the banking sector. Financial stocks, private banks, in particular, have been among the biggest wealth creators for India's equity investors in the last two decades.

Khemani said what works for technology is that it's a cash flow-positive sector with high ESG sustainability, doesn't require capital and has well-governed companies. "Through this sector, India is blessed with a multi-year wealth creation opportunity that shall soon shower a healthy impact on the economy, addressing current account deficit and rejuvenating employment opportunities."

Tech firms will see a higher return on equity, cash flow conversion and demand, he said. There will be an expansion in multiples and IT firms will be trading at 40 times their earnings, he said, adding the mid caps will turn into large caps.

Banking

The banking sector, beset with bad loan troubles, will also see its growth improve in the next three to four years, according to Khemani. Sectors such as steel and coal are coming back to life, which will have a positive impact on the banking sector, he said.

Carnellian expects the BFSI sector to deliver 15-18% returns in the next three to five years.

Real Estate

The last two years saw real estate attract huge capital, Khemani said. Ever since RERA came into force, good quality developers with a well-capitalised balance sheet and good execution capability will only survive, he said. He sees share of real estate in the market increasing from less than 1% to 5-7% over the years.

Manufacturing

India's manufacturing GDP is poised to surge from $450 billion to $1.5 trillion, driving a massive pick-up in the investment cycle and accelerating revenue, according to Khemani. Just like technology, this sector too will have a multiplier effect in creating more jobs, addressing the current account deficit and improving the growth profile of India, he said.

Watch the full conversation here :