Daily Voice: Markets priced in most of bad news, now look for bargains at these levels, advises Yes Securities' Amar Ambani

We believe real estate is traversing a multi-year upcycle, given that demand is consistently outstripping new launches, thereby shrinking unsold inventory. Both affordable and luxury segments are doing well and reputed builders command a significant premium on their products. Adjusted for inflation, prices are still reasonable compared to the prior cycle peak.

Though the wood panel space is facing headwinds – viz MDF over-capacity and high timber prices - they are expected to ease out in FY26. As stock prices tend to bottom out and then rise in anticipation of better times, an investor with patience and a long-term view may begin building positions in a phased manner.

In the case of plastic pipes, Q2 was severely impacted due to destocking at the dealer level following the fall in PVC prices. However, with ADD imposed on PVC and likely BIS norms, prices should bottom out, and dealers may prefer re-stocking. Demand from housing and agri is likely to stay upbeat. Moreover, with government capex likely to pick up, we expect strong demand emanating from the infra segment.

Is it the time to add exposure to rural recovery plays?

Rural recovery has been playing out for three quarters now, although on a small base. Our channel checks suggest a sustained rural performance in October and November and expect a good H2 FY25. Bountiful monsoons, expectation of a bumper harvest, decent reservoir levels, MSP increase, real wage improvement, and government measures are likely triggers supporting volumes for the next 6 months. Having said that, we can’t as yet confirm whether this is a structural recovery, given the drop in rural households’ savings amid growing indebtedness. Further, given the recent slowdown in urban consumption, I would adopt a case-by-case approach to rural recovery plays.

Do you think it is better to have private banks than PSUs in the portfolio?

This decision would depend on the franchise. While private banks are generally more efficient, some public sector banks have also pulled up their socks after the last downcycle. Many of them are well capitalised, more vigilant on corporate exposure, steadfastly building their retail book, and centralising and strengthening credit evaluation. It is imperative to assess private and public banks in the exact context of the valuation at which they trade. Our pecking order spells out our preference: BOB, Indian Bank, Axis, Karur Vyasa, SBI, and Federal.

Do you believe now that most of the risks and concerns are priced in, and the market has started a new leg of up move?

For Nifty, we reckoned a near-term level of 23,000-23,500 was a good base. It has bounced back somewhat from these levels. Most of the bad news is in the price and I would look for bargains at these levels. If Trump indulges in strong posturing on assuming office, ahead of pushing countries to sign trade deals, markets will tend to react sharply. He’s still two months away from assuming office. But even that will be a correction in a structural upcycle.

Having said that, market dynamics never stay the same. The last 3 years were a different ball game: a relatively easy ride for investors, as almost every stock across sectors was part of the rally. At this juncture, we are more likely to see a marked divergence at play: of drawdowns in certain sectors and stocks, and buoyant performance in select propositions. In the present scenario, companies with growth visibility, reputed management, and reasonable valuations will do well.

Do you see strong pick up in government capex in H2FY25?

The government will analyse the growth data, IIP, and corporate earnings performance and will decide to spend a large part of its budgeted expenditure in H2 of FY25. In H1, they ended up spending only 37% of their budgeted capex.

Is the market betting on a strong earnings recovery in the second half of FY25?

We are indeed betting on a better H2. The government’s big spend on capex in H2, so also the traction of the festive season and sustained rural growth should fetch better outcomes. However, Q3 is unlikely to see a big recovery; Q4 is likely to fare better.

Is the jewellery industry looking quite attractive?

Given a busy wedding season coming up, all jewellery players are optimistic about strong numbers. However, valuations are not cheap. On the bright side, the larger number of wedding dates versus last year, as also a robust H1, augurs well for an upbeat FY25.

Do you see a rate cut cycle beginning in the first quarter of 2025?

Given the food price fluctuation and high inflation, a rate cut looks highly unlikely at this point. With the Trump factor in the mix, and threatening trade tariffs, the RBI will want to guard against any INR depreciation, which can take inflation higher. RBI will also need to maintain a certain rate level to attract foreign fund flows, given that FIIs have been selling in the last two months. It’s a tough call really, but we don’t see a rate cut exceeding 50 basis points in the foreseeable future.

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