Key Bets To Ride India's Capex Boom From Emkay Global's Krishna Kumar Karwa

Workers labor at the welding line on the Innova Crysta compact multi-purpose vehicle production line at the Toyota Kirloskar Motor Ltd. plant in Bidadi, Karnataka, India. (Photographer: Dhiraj Singh/Bloomberg)

Emkay Global advises investors to watch investment themes linked to India's anticipated capital expenditure boom.

“Industrial, manufacturing and automobile sectors are poised to grow in the next couple of years due to companies' aggressive capex plans,” Krishna Kumar Karwa, managing director at the research firm, told BloombergQuint's Niraj Shah in an interview. “Cement, capital goods and various other segments of the capex cycle will do well.”

The top two to three companies in various manufacturing sectors are at 75-80% of capacity utilisation, according to Karwa. Most of the large corporates are either talking about or have already initiated capex plans, he said. “Balance sheets of most of these companies are robust so they do not have any challenges while deploying capital."

“Manufacturing sector per se is poised for a massive growth in the next three-five years,” he said.

Karwa expects capital goods benefit from capex overseas. “Many developed countries have announced various fiscal stimuli so there will be a massive capex overseas as well,” he said. “Many of the domestic capital goods companies will have two engines of growth—exports as well as the local growth.”

Big On Autos

Karwa expects passenger and commercial vehicle segments to outperform "big time" in the next 12-18 months.

There is robust demand for passenger vehicles, and commercial vehicle sales will improve as the economy and infrastructure spending picks up, he said.

Karwa advises investors to consider auto ancillary companies with exposure to Indian and global markets if the risk to internal combustion engine ecosystem remains limited.

The research firm, however, expects the two-wheeler segment to struggle amid sluggish sales, rising inventory and the threat from electric vehicles. “The threat from EVs is possibly the maximum and the nearest for two-wheelers.”

Competition In Fintech

Fintech faces massive competition and “there are not going to be too many winners”, Karwa said.

Most banks will be able to replicate the fintech model, Karwa said. “That's a very fragmented part of the business. So there, the survival and growth for many of these fintech companies could be a challenge.”

“Banks which are digitally very savvy will collaborate with these fintechs and maybe replicate their technology over a period of time,” he said. “That's one space where we are being very careful while investing.”