Comebacks, dark horses, and duds: Here's Nippon MF's Sailesh Raj Bhan's 2025 stock market playbook

Which pockets do you think could potentially surprise going ahead?

Consumer, once the golden sector, now faces low expectations with earnings growth at 6-7 percent, significantly reduced. Stocks have underperformed for five years due to high valuations, but with prices now lower, there could be earnings surprises. Many consumer companies saw valuations fall from 70-80x to 35x, though still not cheap. However, they are high cash-generating businesses, and any earnings uptick could surprise the market.

Also read: India’s largest small-cap fund manager sees greatest value in large-caps. Sailesh Raj Bhan on 2025 outlook, strategy, risks

Your take on conventional retail versus quick commerce…
In retail, large companies have struggled, creating opportunities for market share gains as weaker competitors collapse. Quick commerce has disrupted traditional retail, but it's still a new trend in India, impacting only top cities for now. Strong companies adapting to this change will thrive, while those resisting will face challenges.

India offers opportunities for all sectors. While metros like Bombay and Delhi are saturated, a large portion of India is yet to enter malls. Both offline and online growth can coexist. Offline retail has been strong, and growth in retail market caps has surpassed online. We’re still early in the cycle, maybe 10-15 years early, but both will grow for some time.

As for quick commerce, these disruptors are impacting both organised and online retail. If priced sensibly, businesses can scale and growth projections appear fair. But overpaying for these businesses won’t work.

About NBFC space

Despite increased competition, market leaders in the non-bank financial space are likely to gain market share and consolidate their positions, while weaker players will fall behind. Those with weak balance sheets or poor strategic focus will struggle, while the strong will adapt and continue to lead.

So, you're saying that you are bullish on consumer staples and retail business, and the leaders will do well…
These forgotten bluechips, strong franchises with a history of winning, have had slower growth over the last four years. The good part is that these businesses aren't commanding high premiums today. The risk in this market is overpaying. Unless you're buying a business that will continue to perform well for 20 years, it's risky. These segments, like the consumer sector, appear to be reasonably priced.

Are you bullish on banks?

The starting point last year was low (for large banks), while other sectors like capital goods and defense were trading at high multiples. The market believed banks wouldn’t perform well, but we saw great value in them. Larger banks have no NPA or credit issues and are well-provided for any contingencies. Their market share gains are reasonable. For India’s growth, these sectors must also grow, and their valuations were cheaper compared to others. Most banks had a P/E ratio of about 15 times, much lower than other sectors. And there cannot be growth in India without growth in banks. We don't foresee a major challenge to the larger credit cycle in India, and growth will return to a normal pace.

So, you stick to large private sector banks?
Market share is shifting to more efficient, larger banks. So we own large banks, both private and public sector. In state-owned banks, we are sticking to the leaders.

Any other areas that appear reasonable?
Chemicals and select power utilities are reasonable. While nothing is cheap, power utility companies are reasonably priced. Most utilities are in the same range, around 2.5 times book value or higher. If utilities weren’t growing, they’d be too expensive at these valuations, but there is significant growth, and companies are expanding capacities. The shift to solar energy creates significant demand for companies that can build capacity. Six months ago, the market thought everything would grow except what was needed for that growth, which led to overpricing of some businesses. The risk-reward for these utilities is better now. They might not offer substantial absolute returns, but they’re a more optimal choice. We particularly like utilities which have lower cost of funds.

Do you see a turnaround in specialty chemicals?
Only 4-5 companies are truly specialty chemicals businesses, and these have long-term relationships, and valuations have corrected, so we like them. The rest are commodity chemicals, which are cyclical. Contract research and manufacturing services businesses are also worth looking at, as they’re becoming part of the global supply chain, and their valuations have corrected as well.

Are you bullish or bearish on IT right now?
We’re reasonably positive on IT. The growth rates are shifting from low single digits to somewhat higher single digits, based on our interactions, which seems reasonable.

There’s no immediate threat from the new administration. It’s too early to fully assess the potential impact, so we’ll take it as it comes.

You’ve been bullish on pharma?
Pharma has done well over the last year and is up significantly, so much of the visible growth is priced in. We are neutral but selectively find opportunities in the sector.

Any dark horse?
Cement is a potential dark horse over the next 2-3 years due to consolidation in the sector. While there is a lot of supply, pricing power could return with further consolidation, leading to an upside in pricing. These cycles take time, but today, leaders have a larger share of capacity compared to 3-4 years ago. Growth in volume should help drive pricing power.

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