Want to bet on infrastructure? Go for cement stocks

If infrastructure grows, cement companies see good demand and even if the sector is dull for a period, then also these companies are able to see demand from individual housing and other areas, says Vinit Sambre, Head – Equities, DSP Mutual Fund.

Is infrastructure a pocket where one could find stocks to invest in? Would you stick to a couple of frontline names or could one dig deeper?
Broadly we feel cement is the better way to play the infrastructure spend and growth is coming back to the cement businesses because these are more diversified in terms of their mix. If infrastructure grows, anyways they see good demand and even if the sector is dull for a period, then cement companies are still able to see demand from individual housing and the other areas.

So to avoid the pitfalls and the gaps between the expectation and the delivery as far as the infrastructure is concerned, one can look at cement and that is what we have done. The overall view which was getting crystallised earlier was that infrastructure spends will be a bit low because of the challenges which the government has in terms of finances, but the government has started to prioritise the areas where they would like to spend and they are seeming to be getting a bit more aggressive in terms of their spends. They have borrowed and provided funds to the states to spend. We are hoping the second half would be better in terms of infrastructure spend. Nonetheless, it would benefit the cement sector and that is what we are trying to focus on.

What is your view on midcap product companies in India? A lot of companies have got listed and some like Affle, Route Mobile are about to get listed. Are you shopping in that space?
We have not taken exposure to some of these names yet and while we keep evaluating we have not been able to get the big picture out there and as these companies are new, we would want to watch them perform for a while before we take a call. But yes, some of these businesses seem to showcase good potential and may scale up. But when it comes to technology, we would rather err on the side of caution because technology can change very quickly and businesses can get disrupted.

From an investor standpoint, what would be a safer return expectation even if an investor was looking at the small cap fund over the next couple of years?
As far as the return dynamics are concerned, over a long period of time, the returns tend to track the earnings growth trajectory and in terms of the businesses which today showcases 15-16% plus earnings growth potential on an annualised basis for a 8-10 year period, the market returns would tend to capture those return dynamics. But it is very difficult to time some of these because we have also observed that there could be a long period of absolutely dismal returns and suddenly within a year, all of that will get captured.

The nonlinearity of the return is something which probably kills some of the enthusiasm of the investors. But that is the nature of the market. I would say generally over a long period of time, the returns will track the earnings growth and within that, the smallcap and midcaps, given their potential to grow at a higher rate, will tend to outperform the large caps.



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