Why is Sachin Shah betting on export-oriented sectors?

How is your portfolio positioning right now given the way earnings are? What are you betting on?
The markets have been very buoyant for almost 12-18 months. I was just looking at some data ending September and over the last 18 months, the market has more than doubled as far as largecap indices are concerned. The midcap and the smallcaps have gone up 160-200%. But that has to do with the crash of March 2020 when within a single month, the market was down by 30%.

Of course it is also more like catching up with the mean because if I look at three year, five year even seven-eight years, the returns are still broadly in the range of 15% to 18%. The important thing from here on is that we are seeing a lot of high frequency data points which are helping us to say that the economy is rebounding very strongly, which can be seen in auto volumes, cement volumes, steel volumes or railway freight data. After many years we are seeing double digit growth in exports.

The other important part is when we look at some of the other developments, particularly on Jio as well as China developments, it is going to be a big big boon in disguise for a country like India. So manufacturing as a sector and particularly companies which will be more focussed on the export side will be in for a very good time. There could be a multi-year secular growth story on the manufacturing side, which has been missing in the Indian economy for the last one or two decades. Now that has a very large potential to play out. So we are very much focussed on those businesses which are global facing, manufacturing, which have some economies of scale and where India has certain domain expertise — be it pharma, IT services, within the engineering space and probably even auto and auto ancillaries and chemicals.

All these businesses are in for a very good time as far as their business growth is concerned and we are definitely trying to position and invest in those opportunities.

What percentage of your overall portfolio would comprise export oriented businesses?
We are very overweight on pharma. We are fairly positive on that sector particularly in the contract manufacturing and specialty chemical spaces. Then include the IT services and also some of the other niche businesses like coffee outsourcing kind of a business or even businesses to do with textiles and logistics. I would believe that more than 50% of our portfolio is more focussed on that side.

So when you talk of a pharma tilted portfolio, what kind of pharma stocks do you have? Do you have these API plays which are Rs 10,000-25,000, 40,000 crore m-cap size? Or do you have generic largecap pharma exporters or domestic oriented healthcare plays including hospitals and diagnostics?
We have both pharma and healthcare. Within pharma, a large part of our portfolio is more tilted towards the contract research and manufacturing space which is a custom synthesis and also the APIs. But API is also more for the contract manufacturing for some of these big pharma companies. So we are extremely positive on the CRAMS and the CDMO space. We have been invested in this space for more than three-three and a half years and they have delivered fantastic business growth and stock price returns. We continue to ride over that.

Within the healthcare space, we believe that in the post Covid environment, we all have realised how under invested we as a country are as far as the healthcare infrastructure is concerned. We believe that there is going to be tremendous growth in healthcare investment and that is where also we have positioned ourselves as far as the domestic healthcare is concerned.