Spark’s Devang Mehta sees 18-25% growth in capital market stocks over 3-5 years, favours capex

The capital expenditure and capital marketplace themes offer the strongest wealth-creation opportunities in the current market, with capital market stocks poised to grow 18% to 25% over the next three to five years, according to Devang Mehta, Deputy MD & CIO-Equity at Spark Capital Private Wealth.

Discussing market fundamentals, Mehta advocated a market-cap agnostic approach, leaning towards the broader markets. Largecap stocks have become inexpensive over the past two to three years, but earnings growth in heavyweights across banking, IT, oil and gas, and fast-moving consumer goods has been highly polarised.

In contrast, mid and smallcaps have delivered robust financial performance. A review of roughly 450 companies that recently reported earnings showed revenue growth of around 20-21%.

“If you probably want to buy the future winners, the future market leaders, there are a lot of streams across companies, which are companies or sectors which probably would wrap themselves in ₹30,000, ₹40,000, ₹50,000 crore of market cap rather than going into mega caps of ₹5 lakh, ₹8 lakh, ₹10 lakh crore,” he said.

The recent market correction in October—driven by margin trading facility (MTF) pressures, crude oil reaching $114, rising inflation and the narrative around rate hikes—has triggered a severe pullback in mid and small caps. This downturn has created attractive stock-picking opportunities in businesses demonstrating strong earnings.

Shifting to sectoral picks, Mehta highlighted the capital expenditure theme as a primary focus, encompassing engineering, manufacturing, defence, aerospace and auto ancillaries. Within this basket, power ancillary, air cooling solutions and precision engineering companies have reported strong earnings despite recent stock price corrections.

The power automation and high-voltage direct current (HVDC) segment presents a massive runway for growth. The sector offers an opportunity of roughly ₹12 lakh crore, while current order books stand at just ₹60,000 crore to ₹65,000 crore. Investors should be prepared to absorb deep corrections of 10% to 20% to capitalise on the long-term potential.

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Spark Capital’s Devang Mehta sees 18-25% growth in capital market stocks; favours capex and midcaps

Alongside capex, the capital marketplace is positioned for significant expansion due to under-penetration. Businesses such as asset management companies, exchanges, intermediaries and wealth managers are expected to compound steadily, driving the projected 18% to 25% growth trajectory over the coming years.

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