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CLSA’s Mahesh Nandurkar’s Best Investment Themes For The Year Ahead

Housing recovery, rural consumption and food services.

These are the best themes to invest in the next 12 months as global fundamentals and geopolitical concerns limit the Indian stock market’s performance, said CLSA’s India Strategist Mahesh Nandurkar.

Real estate developers followed by housing finance companies will be the key segments to do well within the housing theme, he told BloombergQuint. Cement, consumer durable companies, and engineering, procurement and construction contractors will also be good bets, he said.

India’s housing and construction industry is expected to recover in the coming months led by the government’s affordable housing initiative and infrastructure push. Road orders rose to a record in the just-ended financial year as Prime Minister Narendra Modi’s administration focuses on job creation ahead of the next year’s general election.

Also read: FSI Increased For Residential, Commercial Buildings In Mumbai

The next theme to bet on is rural. In the run up to elections, the central and state governments are expected to focus on reviving the rural sentiment to strengthen their chances, Nandurkar said. Already, the government has promised a support price of 50 percent above the costs for the monsoon cropping or kharif season.

We are expecting a steep increase in MSP which will boost rural demand recovery.
Mahesh Nandurkar, India Strategist, CLSA

Consumers staples with a higher proportion of demand from rural India and automobile companies were also his picks.

Also read: India Hikes Raw Jute MSP By Rs 200 To Rs 3,700 Per Quintal This Year

The quick service and fast casual restaurant model is also promising, he said. “One sub-segment of the consumption theme where growth seems to be improving is QSR.”

Yet, investors will have to temper return expectations as oil prices and geopolitical tensions between the U.S. and North Korea, Iran and China, continue to rise. The Nifty has seen a pullback in the last month and a half as oil prices rose. Investors must expect single-digit returns in the next 12 months, according to Nandurkar.

“If you look at the correlation between the oil price movement and the performance of the Indian market, it is probably inversely related in the event that the price increase is driven by the supply side,” he said. “Currently, the oil hike is driven by supply-side factors. That kind of an environment is not a great one for the Indian market.”

The Nifty has gained 0.54 percent so far in 2018 compared with a 28.5 percent return in the previous year.

Also read: Trader's Guide to India Elections Says It's Time to Buy Equities