Aditya Birla SL AMC picks 5 themes that may play out in next 3-5 years

NEW DELHI: Every market cycle has its own set of winners and most of the time the variation in returns among the best and worst performers during a cycle is too large, underscoring the importance of picking themes.

This phase is no different, said Aditya Birla SL AMC, which expects themes such as manufacturing, digitisation, ESG and real estate may play out well over the next 3-5 years. The mutual fund house also sees midcap and smallcap stocks outperforming their largecap peers going ahead.

Aditya Birla SL AMC said the phase of the economic cycle, the focus of government policies, industry disruptions and emerging sectors do lead to a change in trends. The fund house said that emerging sectors are initially ignored due to low revenues and perceived risks.


"The unorganised market in such sectors," Aditya Birla AMC said, "is usually large, which can be taped by more efficient players."

Meanwhile, the fund house said disruptions do hit sectors every 5-7 years and tend to change the cost structure for the industry due to changes in consumer preferences.

Sectoral performance
In its study, the fund house noted that consumer durables, chemicals, and real estate stocks delivered a 26-32 per cent compounded annual growth rate (CAGR) during February 2016 and January 2020. During this period, communication, media compounded and industrials fell up to 9 per cent annually.

Automobile, pharma and financial themes led the August 2013-February, 2016 gainers, with 27-42 per cent annual returns but real estate and banks fared badly during this period.

The consumer staples sector performed fairly well during November 2010-August 2013 at the expense of industrials, metals and real estate. From October 2008 to November 2010, media, automobile and banks performed well while retail and communication sectors were laggards, it noted.

Themes for next 5 years
The fund house said it is bullish on the manufacturing sector. It said a mix of push and pull factors such as Atmanirbhar Bharat and Vocal for Local initiatives by the government, along with diversification of global supply chains will drive the manufacturing sector's outperformance.

A low interest rate environment, Covid-induced work-from-home, industry consolidation induced by RERA and availability of capital to larger players is seen benefitting sectors such as real estate and building materials.

On ESG, Aditya Birla said risking risks from the environment has prompted the government and corporates to adopt sustainable ways of doing business through green fuel, green technologies, and green mobility. It is positive on the digitalisation theme as digitalisation in India is fast-tracked due to the low cost of data, government initiatives such as Aadhar and UPI.

Finally, Aditya Birla sees small and midcap stocks outperforming largecaps, due to economic recovery, lower interest rates and increased representation of emerging sectors such as chemicals and digital platforms.