"The power story will probably stay for another three years, given that peak power demand is likely to cross 400 GW by 2030," Ambit Asset Management CEO Sushant Bhansali said in an interview to Moneycontrol.
But he's more circumspect on defence. The valuations of defence companies have seen significant re-rating in the past year, with most defence stocks rallying over 100 percent despite earnings growth not increasing by even 50 percent.
Hence, Bhansali, who has more than 20 years of experience in asset management, advises that one should wait for earnings growth to catch up before taking fresh positions.
Excerpts from the interview:
Is the power space a long-term theme?
Yes. The power story is likely to stay for another three years, given that peak demand is likely to cross 400 GW by 2030, compared to the current coal-based installed capacity of 218 GW.
While the overall installed capacity number looks high, at approximately 428 GW, it includes renewable and hydro capacity, which operate at much lower PLFs (plant load factors) than coal. However, given the cyclical nature of the business, one should select companies based on financial performance and the strength of their balance sheets to achieve better risk-adjusted returns.
Should one take fresh exposure to defence stocks only after seeing their execution performance for a few quarters, given the elevated valuations?
Indeed. The valuations of defence companies have seen significant re-rating in the past year, with most defence stocks rallying by over 100 percent despite earnings growth not increasing by even 50 percent. Consequently, one should wait for earnings growth to catch up before taking fresh positions.
Is now the time to gradually increase exposure to the chemicals space?
Yes, we are becoming constructive on the chemical sector, given the steps taken by the Chinese government to revive the domestic economy. Moreover, for several chemicals, the trend of falling prices has also abated, which gives us confidence that margins have bottomed out and will gradually recover as the Chinese reduce their global dumping on the back of domestic growth revival. In our view, the key themes on which global volatility has lower impact are import substitution and value addition.
Should one be selective in the FMCG space?
Yes, one has to be selective. We believe the consumer discretionary sector will take time to recover given the high base, but we see companies in mass consumption and staples doing well in FY25, driven by market share gains due to price cuts. Their growth could further accelerate if the monsoon is favourable, especially given last year's weak monsoon.
Do you think Indian equities have discounted most of the positive news?
We don't expect the broad-based rally seen last year to be replicated in FY25, given that mid and smallcap indices are trading at over a 20 percent premium to their (last) 5-year average of 1-year forward PE. Meanwhile, largecaps are trading in line with their averages.
We believe FY25 will be a stockpicker's market, where active fund management will have significant impact.
Do you see enormous growth in the wealth industry, given the growing allocation from retail investors, HNIs and ultra-HNIs?
Post (added) Covid, we saw significant wealth generation for the HNI, retail, and ultra-HNI communities. Clearly, this will aid the growth of the wealth management industry, as evidenced by the record addition of demat accounts. In terms of penetration, India is far below developed countries, and this catch-up is inevitable as the gap in per capita income reduces. Higher income will lead to higher savings, and with the shift in the preferred modes of saving from hard assets to financial assets, the wealth and asset management industries have enormous tailwinds for the next two-three decades.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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