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Old Bridge Capital Management expects the manufacturing sectors which saw a major pull-back during the peak-Covid pandemic to lead the economic recovery largely on the lower labour and energy costs, besides production-linked incentive scheme reviving the capex cycle.
Kenneth Andrade, founder and chief investment officer, Old Bridge Capital Management said the manufacturing sector particularly the one with global footprint is seeing a strong rebound and expected to increase its contribution to gross domestic product.
Some of the sectors such as automotive, building material, commodity oriented, technology and pharmaceuticals are buzzing with on-ground activity due to significantly higher order book, he added.
Labour cost to moderate
The labour cost which had scaled an all-time high in last decade is expected to moderate with automation and efficiency improvement while adoption of green energy will more than halve the power cost and add up to the profitability of companies, said Andrade, an expert known for his mid-cap bets. Finance cost is also expected to moderate given the current interest rate and inflation environment globally.
A fall in expenses on labour, energy and finance costs, which account for about 23 per cent of total revenue, would make Indian companies more competitive, he said.
The lower cost of production will also help corporates to compete more efficiently in the global market when the global supply chain is facing multiple headwinds in China.
Opportunities
Information technology, pharmaceuticals, chemicals are some of the established sectors where valuations and business models have been overlooked as historically they were non-performers. Large opportunities are also seen in engineering, automotive and some labour-intensive business models, he added.
Valuation of businesses aligned to the farm economy remains cheap even as profitability of companies in the agriculture segments have now become structural as the cash flow in the rural economy remain elevated, said Andrade.
Though the valuation of corporates driving digitisation are expensive, they are in a hyper growth environment with the concept of social distancing driving their businesses, he said.
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