Ambit sees chemicals as a top contrarian bet in a fully priced market

Industrials, chemicals, consumption are the three contra themes shared by Ambit Asset Management.

In an interview with Moneycontrol, CEO Sushant Bhansali and equity fund manager Siddharth Bothra said that while the benchmark indices have held up, stock picking has become critical. Some of the best opportunities may lie in sectors that have been ignored due to recent underperformance.

Ambit Asset Management commands assets under management of Rs 4,280 crore across five equity schemes. Here are their top takes.

Chemicals: Favourable Valuations, Strong Tailwinds

Of the three themes, chemicals qualifies as a contrarian idea as it is the most beaten-down, and therefore, the most primed for a surprise. Global channel inventories are now at a five-year low, which raises the likelihood of restocking-led demand recovery and margin improvement.

“The recent price uptick across chemical products signals early signs of recovery,” Ambit said in its latest monthly note, adding that current Street expectations may be too conservative.

After the post-COVID boom in FY20–22, the sector disappointed with a sharp earnings and margin reset. Instead of the expected 23 percent earnings CAGR through FY25, the actual revenue CAGR turned negative at -3 percent, and median EBITDA margins fell from 25 percent to 13 percent by FY24. Consensus now builds in only a modest 18 percent revenue CAGR and 18 percent margin by FY27, which are assumptions Ambit believes could be upgraded.

Bhansali added that institutional interest is returning to select chemical names. “We’ve already seen price action in FY26, and both foreign and domestic institutions are getting active and building positions in these players,” he said.

Still, he cautioned that Indian players exposed to segments where China has a dominant, state-backed presence remain vulnerable. “Those with differentiated business models and limited overlap with China are better placed to outperform,” he said.

Consumption: Early Signs of a Turnaround

Ambit believes consumption, both staples and discretionary, could stage a strong comeback, as evidence by recent data. Slowing volumes and margin pressure from inflation had made many investors wary over the past year, but green shoots are emerging.

“Some companies are already hinting at better volume growth, and we're seeing managements revise their strategies to chase consumption-led recovery,” said Bothra.

Bhansali ssaid the broader economic cycle turning favourable as inflation cools and job creation picks up. “This year’s wedding season is expected to be longer, which should further boost discretionary demand,” he said.

He compared the current momentum in the consumption space to the BFSI sector six months ago, which was ignored by many market players until a rally took off.

Industrials: High Valuations, Hidden Potential

While industrials are not a traditional contrarian call, Ambit still sees stock-specific opportunities within the space. Even though this sector is heavily tracked, not all the potential is fully priced in, said Bhansali.

Some companies in the space are trading at rich valuations, up to 150x earnings, despite muted growth. But their business mix is evolving, especially with rising contributions from services and exports, which now make up 35-40 percent of revenues for some names.

“Industrials are moving from being cyclical to structural stories. With capex gradually coming back, industrials look well-positioned,” Bhansali said.

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