Employees walk past electronic boards displaying stock figures in the atrium of the National Stock Exchange of India Ltd. (NSE) building in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Alpha Moguls: Samit Vartak Sees Pockets Of Growth Among Auto, Real Estate Suppliers

High valuations can be ignored when companies have the potential to grow, said Samit Vartak, known for betting on only a few stocks. He sees an opportunity among suppliers to automobile and real estate companies amid high multiples of Indian equities.

"Valuations are a secondary thought. But is the business itself getting stronger?" is a question that needs to be asked, the chief investment officer of SageOne Investment Advisors said on the latest episode of BloombergQuint’s special series Alpha Moguls. Parts suppliers to two-wheelers and low-cost cars are a good bet, he said.

India has an unemployment problem and the country will have to focus on manufacturing to address that, according to Vartak. But within the auto sector, investors should be careful to avoid the firms that are exposed to the transition to electric vehicles.

Vartak is also bullish on the construction sector.

Find those companies which are suppliers to affordable housing, which are completely diversified in terms of supply to multiple other industries—where they will be able to benefit from the overall infrastructure spending.
Samit Vartak, Chief Investment Officer, SageOne Investment Advisors

“Even if the economy doesn’t pick up, those companies will still do better than the others.”

He is batting for an earnings pickup that will lead to growth despite the macroeconomic influences on the market, he said. Price-to-earnings multiples in India are fairly high but margins as a percentage of sales are towards the lower end, indicating that they will only improve.

“I look at bottom-up businesses and they are saying that there is demand momentum,” and this should push companies to use their excess capacity. Higher margins coupled with capacity utilisation could boost earnings, he said.

Watch the full conversation here.