India’s Motilal Oswal Asset Management Co. is expecting the country’s insatiable appetite for discretionary goods and the government’s push to expand manufacturing to spur the next leg of a rally in related shares.
Chief Investment Officer Niket Shah said he’s adding shares of companies that offer lower priced non-essential goods, such as jewelry and apparel, on expectations of increased spending. He’s also scouting for opportunities in India’s growing electronic component sector. The asset manager’s Motilal Oswal Midcap Fund has returned about 63% in the last 12 months against a 33% gain in its benchmark, making it the top mutual fund in the nation.
As food inflation remains high, the government will try to put more money in the hands of the people, said Shah, who oversees more than $7 billion. “I’m expecting meaningful changes to the income tax code that will benefit consumers at large,” he said.
While rising prices have hurt demand for fast-moving consumer goods companies, people aren’t willing to dial down on some discretionary spending, said Shah. People earning lower incomes are “aspiring to get high-end phones,” even if that means sacrificing on basic expenses, he said.
Several Jewelry Stocks Soared in India This Year
Spotting sector inflection points and making timely exits have helped the fund’s performance, Shah said. He bought telecom companies Bharti Airtel Ltd., Indus Towers Ltd. and Vodafone Idea Ltd. before the industry implemented fare hikes. Bets on technology stocks Persistent Systems Ltd. and Zomato Ltd. also added to gains.
In electronics manufacturing, production-linked incentives will likely boost the sector as the nation seeks to expand its role in global supply chains, according to Shah.
“I’m also getting the sense that the government is slowly moving in favor of allowing some Chinese firms to set up joint ventures in India,” he said. “With technology from China and manufacturing done in India, there is a lot more scale that is achievable.”
As of Nov. 31, Motilal held Kalyan Jewellers India Ltd. and affordable fashion retailer Trent Ltd. in various portfolios. It also owned shares of Dixon Technologies India Ltd., a contract manufacturer for Samsung Electronics Co.
