ICICI Prudential's Key Equity Themes To Bet On

Manufacturing, auto parts, and metals are key sectors that have potential for growth, according to Anand Shah of ICICI Prudential Life Insurance Co.

After a period of muted growth, the manufacturing has recently shown signs of strength, Shah, portfolio management service head at ICICI Prudential Life Insurance, told BQ Prime's Niraj Shah. Manufacturing and related industries constitute 50-60% of the fund's portfolio and there are chances of growth, he said.

The fund concentrates on manufacturing firms involved in the production of capital goods, engineering, metals, textiles, and defence. Its portfolio comprises business-to-business enterprises than consumer-focused businesses, while it remains underweight on information technology, pharmaceutical, and fast-moving consumer goods stocks.

In addition to new and emerging businesses in the sector, pre-existing ones that held out during previous economic cycles have also made plans for the future, Shah said. In order to develop an export market for themselves, businesses have diversified from the domestic market, and balance sheets have been adjusted to remain cost effective, he said.

Manufacturing businesses have also produced higher earnings, and overall price performance has lagged earnings growth to the point where valuations are still attractive, Shah said.

According to him, just because stocks have rallied in value over the past two years, investors should not sell their holdings. The market continues to underappreciate the turnaround on the balance sheets, therefore ICICI Prudential is still positive on the sector, Shah said.

ICICI Prudential expects good results to be reflected on valuations, as the return on equity and equity trajectory continues to improve, he said.

Multinational companies with Indian operations have an advantage in the manufacturing sector, according to him. As compared with their Indian competitors, they can make capital expenditure decisions more easily because of their captive market and ease of switching production sites, he said.

When it comes to investing money in new capabilities and brownfield expansions in the listed space, international corporations have been particularly significant, Shah said.