Axis Capital’s Top Sectoral Picks To Invest Your Money

Axis Capital is betting on automobile, infrastructure and large-cap banks among others to lead the stock market higher after an uncertain election environment gave way to formation of a stable government for the next five years.

“We are believers that capex plays like engineering and infrastructure, these are the plays that need to be stepped up from the portfolio stance, “Kashyap Pujara, head of research at Axis Capital told BloombergQuint. “We're very clear that one should be overweight in them.”

Axis Capital’s view stems from the dire need of addressing the job crisis in India. The government’s focus will be to move people from “farms to the factory floor” and that means investment-led themes will get a boost from higher capital expenditure, Chirag Negandhi, Joint Managing Director and Co-Chief Executive Officer of Axis Capital, said.

The brokerage, which hosted its annual conference on May 27 and 28 in Mumbai, is advising its investors to focus on sectors like engineering, infrastructure, construction, cement and large banks that are focused on corporate and project lending.

“We're telling people to go first into the the investment-led theme and then follow up with the consumption-led theme couple of quarters down the line,” Srinivasan Subramanian, managing director of institutional securities, Axis Capital, said. “That’s what we have been pushing our investors to do.”

Watch Out For Autos

The auto sector, which has been battered in the recent months due to a sales slowdown, is one key focus for Axis Capital.

“Auto will be a big beneficiary because it's a bombed out sector,” Subramanian said.

Pujare agreed saying that valuations currently have made the sector cheap and attractive. “Auto has been beaten down 35-40 percent and we have moderate earnings expectations. We don't see a degrowth,” he said. “Even if they grow moderately, the valuation cut has been so stark, that this is the point I would want to go overweight on auto.”

Midcaps Will Outperform

The midcap space will be another big beneficiary of the election results, Axis Capital said.

“Midcaps trade at a 23-24 percent discount to large caps today. That's the highest discount I've seen in the last ten years,” Pujare said. “The midcap cycle is due. Even if the broader index pauses to take a breather, midcaps will outperform.”

“The large cap versus midcap valuation mismatches have been there. But now the pre-election uncertainty in midcaps goes away. So the whole midcap investment opportunity is up there,” added Salil Pitale, joint MD and Co-Chief Executive Officer of Axis Capital.