Chemicals To Power— Sector Turnarounds Mihir Vora Is Betting On

Sectoral and thematic bets have reaped stellar returns for investors in the past. Despite this, the retail investors' appetite for sectoral and thematic funds has dimmed, latest monthly data released by AMFI reveals.

Across various sectors and themes, spectacular returns are not always consistent through market cycles. A host of global and domestic cues will determine the performance, growth trajectory and outlook of certain sectors.

“Some of the macro numbers are not encouraging. I'm worried about the trade deficit numbers,” said Mihir Vora, chief investment officer of TRUST Mutual Fund. Expressing concern over the stagnant export numbers, he said it was an indicator of the concerning manufacturing situation.

Though there are opportunities when one approaches with a bottom-up view, one needs to remain cautious when it comes to the macro-picks.  

"Government spending on sectors like roads, railways, and construction that was held up in the first half due to elections should pick up in the second half," said Vora.

Sectors And Expectations

Vora listed a few sectors where strong turnaround is expected. Industrial level recovery of sectors is likely when export numbers pick up.

"Temper down expectation on large caps, but bottom-up view of sectors will get one excited," he said. As sectors like consumption see a 'K-shaped' recovery, according to Vora, the upper end of the sector continues to perform well.

With pockets like high-end housing holding up the space, the lower end of the space remains a question mark, Vora said. He also notes that some of the retailers in the Tier II and III are doing well as they offer value.

The biggest expectation is for a comeback in the chemical space, and he expects the theme to improve as global cues now signal better opportunities.

"Chinese dumping has impacted chemicals and we are now looking at more of volume expansion, not margin. Most companies in the sector have good operating financial leverage," he said.

When it comes to the pharma sector, Vora believes the space has strong contractual opportunities.

"A turnaround case for the medium term is what pharma could see," he said. Vora expects a recovery in other spaces like banks, but some concerns remain.

"Banks should also see some recovery, but the deficit numbers are worrying," he said. The trade deficit gap has widened to $37.8 billion in November, compared to $27.1 billion in October, according to a press briefing by the Ministry of Commerce and Industry on Monday.

Vora's Power Pick

Vora believes the sector continues to be strong with incremental demand. This paced demand is incoming from newer sectors like AI, promising long-term demand spread over a wider horizon.

"In the power space, our exposure is currently focused on transmission and transformers," he said. For demand to take off, a few issues need to be resolved as well.

"Reduce the complexities of taxation and local level corruption. We also have more exposure to wind EPC companies rather than solar," he said.

Within the power sector, the hydro segment also looks interesting, said Vora, who cited increasing government spending in the sector as a significant factor.