Daily Voice: This CEO expects double-digit returns in FY25, is bullish on these 3 sectors

I believe the US Fed has done a commendable job by not losing focus on its objective of inflation reduction despite it being an election year. However, a lot of the cushion the US economy has received to ensure a “soft landing” is due to the built-up savings and handouts during COVID years. As per economists, this should have dried up in late 2023.

Keeping aside any supply-side shocks, I expect the inflation to cool down to the 2 percent Fed target by the second half of the year, in part also due to the high base of last year. It’s the Fed’s responsibility to not only manage inflation but also temper inflation expectations and hence, I believe they have stuck to the hawkish tone in the last meeting. There are six FOMC meetings left in the year, which leave ample time for review and further cuts once inflation figures are announced.

Do you think Q4 will be a disappointing quarter in terms of earnings?

Overall, Q4FY24 is likely to be a mixed bag and it’ll be important to delve into sector-specific nuances. Manufacturing will perform in line with estimates, while autos and ancillaries are expected to do well. PSUs, which  have been the darling of the street recently, will deliver and are expected to outperform, especially in defence and railways.

Among other traditional sectors, pharma may deliver a good performance due to export-led growth. Banking would be in line with expectations, whereas IT is expected to be muted.

Are the valuations still expensive or reasonable in the chemicals space?

Valuations in the chemical space continue to be on the expensive side, as growth has not kept pace with expectations. China has managed to flood the market with cheaper alternatives and the impact is being felt by Indian companies.

The massive growth seen post-covid has set a higher baseline for YoY growth and a tougher target. The capex investments in the sector would likely start showing benefits along with an uptick in growth in CY 2025, with companies in specialty chemicals leading the way.

Which sectors would you focus in the current market conditions?

At a broader level, I believe the Indian markets will continue its growth trajectory and deliver double-digit returns in FY2025. Hence, it would be best to have a diversified portfolio to avoid any sector specific shocks, especially due to uncertainty from elections as well as tensions in the Middle East and Europe.

That said, I believe the banking, telecom, and FMCG sectors do catch my eye in the near term.

Banking stocks will benefit from the expected cooling of the rate cycle as well as improvement in private-sector borrowing, once there is clarity in government policy marking post-election. Telecom stocks should benefit from an increase in tariff rates. A defensive bet in FMCG will help in balancing the overall portfolio while allowing an upside from higher rural consumption, which is expected as per IMD estimates.

Will Tesla's entry, when it happnes, in India give a boost to the auto-component ecosystem?

Tesla, as and when it enters the Indian EV (electric vehicle) market, will boost the interest in premium/luxury EVs in India even further. Its impact on the auto component industry on the other hand is a little less certain.

As of now also, Tesla procures several components from Indian manufacturers, especially relating to its electrical components, other than the batteries and a few parts relating to suspension/un-sprung mass.

I do not see a massive expansion of auto component demand directly by Tesla. That said, the interest in EVs should trickle down to the mid and mass market EV products, leading to a much greater volume of auto components relating to EVs.

Do you see a possibility of a 5-7 percent market rally after general elections?

Again before I give my short-term view, I will reiterate my bullish sentiment of the Indian markets delivering on a double-digit growth for FY25.

In the short term, the 17 percent rally in markets, which began in November 2023 (post news of the state election results), can be viewed as an indicator that the markets have started pricing in a victory for the incumbent party.

Even in the last few days, we have seen a 22 percent drop in the India VIX (volatility index), which shows investors are largely expecting the market to be unidirectional as well as lowering their need to hedge trades using options.

At a broader level, I don’t expect a short-term rally immediately post election since this has been priced in. However, I recommend investors to be conscious of any downside from unexpected election results and use index derivatives to reduce exposure from any market fall.

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