Daily Voice: OmniScience's Ashwini Shami expects double-digit earnings growth in 2025, Union Budget to fuel market rally

We strongly believe that Indian economy is on a multi-year high-growth trajectory, supported by strong infrastructure-building initiatives, growth investments and favourable geo-strategic developments. Markets have already established a clear recovery trend, and the upcoming budget may provide further fuel for this rally. We expect double-digit growth in earnings in 2025, and interest rate cuts by both Fed and RBI likely to boost growth further.

Which themes should investors focus on for 2025?

We have a positive outlook on power, engineering and construction, logistics and financial services sectors. The policy initiative to reduce logistics cost from 13-14% of the GDP to 8% has created various opportunities for organised logistics and the infrastructure EPC space. Green transition and strong growth in power consumption, driven by data centres, EVs and higher per-capita consumption, will drive new growth opportunities in the power sector.

Do you expect government and private capex to pick up significantly now?

According to the October update of the government’s accounts, capital expenditure stands at Rs 4.66 lakh crore. Given that the full-year capex target is Rs 11.11 lakh crore, there is clearly some ground to cover in the remaining five months of the year. In the upcoming budget, we expect an increase in the capital expenditure allocation for core infrastructure segments.

With growth opportunities and demand in capex-intensive sectors such as power, renewable energy, logistics, railways, and manufacturing, we expect private sector capex also to pick up strongly. Additionally, the private sector is currently nearing its highest levels of asset turnover in years, making a strong case for fresh capex plans.

Are you playing the capex recovery via the banking sector and the construction materials space?

Capital expenditure is instrumental in setting up the virtuous cycle of growth for the Indian economy, and the banking sector is at the centre of this initiative. The twin balance sheet opportunity that the banking sector presents is compelling. On one side, banks with high capital adequacy ratios and low NPAs have high lending capacity; on the other hand, corporates have high borrowing capacity due to deleveraged balance sheets, higher asset turnover, and a favourable demand outlook.

With bank credit growth at 14.4% in the first half of FY25, we continue to see sustained momentum in credit uptake, as seen over the past couple of years. We are also positive on the engineering and construction space, specifically infrastructure construction companies and select suppliers.

Do you believe FMCG is still a tough spot due to increased competition?

The FMCG sector has been in a tough spot for an extended period, but this has only recently been acknowledged by the market. As we have stated in the past, the challenges have been two-fold: growth and valuations. The top five names in the FMCG sector, which account for nearly half of the market capitalization of the entire consumer defensive space, have had a five-year revenue CAGR of less than 8%, while they trade at an average price-to-earnings (P/E) ratio of around 50. Without delving into the specifics of the growth challenge, it is clear to us that this space is still not favourable for investors.

Are you bullish on the real estate sector?

Historical data since the 1800s shows that the real estate market goes through an 18-year cycle. Interestingly, the Nifty Realty index exhibits the same pattern. The Nifty Realty index, which was launched in December 2006 with a base value of 1000, peaked in 2008 and has taken nearly 18 years to return to the original 1000 value. Currently, the P/E for the index stands at 55, indicating overvaluation territory.

One could argue that it is still better than the Japanese market, which took around 35 years to return to the peak level seen in 1989. However, for us, the real estate developers' space is a "pass." The only segment in the housing market we are bullish on is the housing finance space, where we see reasonably strong growth due to the focus on affordable housing and attractive valuations.

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