In an increasingly complex economic landscape, sector rotation has become a pivotal strategy for investors. As certain sectors thrive while others falter, understanding where to allocate resources is essential.
Naveen Chandramohan, founder of ITUS Capital, emphasised that the power sector stands out as a critical area for sustainable growth, particularly as India seeks to transition from a services-oriented economy to a manufacturing powerhouse.
Chandramohan in an interview with NDTV Profit argued that the backbone of this transition lies firmly in the power sector. If India is to enhance its GDP and establish itself as a manufacturing economy, significant investments in power infrastructure are indispensable, he holds. This perspective aligns with the country's broader goals of increasing efficiency and productivity, especially as it moves from a mobile-first economy to one that embraces artificial intelligence and advanced manufacturing technologies.
After a decade of underinvestment, the power sector is now poised for substantial growth. Thermal power is projected to grow at an annual rate of 12-14%, while renewables, including nuclear energy, are anticipated to expand even faster, with growth rates ranging from 18-24%. However, this growth presents its own challenges.
While the surge in renewable energy is promising, Chandramohan points out that high growth does not necessarily equate to improved returns on equity. "..Portfolios must have mix of companies which have the capability of having both thermal and renewal alongside each other," he explained.
Companies solely focused on renewables might experience strong top-line growth, but may struggle to deliver the financial returns that investors seek.
As the broader market undergoes shifts, the concept of sector rotation becomes increasingly relevant. Chandramohan has maintained an underweight position on banks for several quarters, citing the sustainability of growth in sectors like power and oil & gas. "Quality of mergers and acquisitions and capital allocation strategies will determine returns in the pharma space," he noted.
Watch The Conversation Here
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