The NSE Nifty 50's earnings may shrink by less than 15% below the three-year average in fiscal 2025, according to Ambit Asset Management's Sushant Bhansali.
Nifty earnings have shown consistent growth of more than 15% over the past three years, he said. "We anticipate a period of consolidation in FY25," Chief Executive Officer Bhansali told NDTV Profit's Niraj Shah in an interview.
He further emphasised that the global economy has faced challenges in recent quarters that are likely to impact it.
Bhansali stated that if the outcomes exceed expectations, with the ruling party securing over 400 seats, there will be a lasting impact on the market for the next few days and weeks.
After the formation of a new government following the elections, it will be necessary to monitor the impact of the monsoon and the key focus areas of the government in fiscal 2025, he said.
"So far, the results have been satisfactory in line with our expectations; a few results were ahead of our expectations, and 1-2 have missed the mark," he said on Q4 results.
"The GDP growth for the last few quarters has been remarkable," Bhansali said. "However, as we are seeing, sales growth has been tapering off recently. Despite this, inflation pressure has not had a significant impact on bandwidth."
"If interesting stocks come down, then we will definitely see major inflows from foreign investors. This will add fuel to the fire in the current market, which has been mostly driven by domestic liquidity over the past few quarters. With good support from global liquidity, another 10-15% growth, especially from the large cap side, looks quite doable," he said.
"There are few sectors where earnings growth is good. Sectors like IT, where the earnings momentum has been a bit dampened, also have reasonable valuations. However, banks present an opportunity where the fundamentals and earnings are in order, he stated.
"The banking sector offers a great opportunity for investors with a long-term mindset on quality franchises to make money on these levels of Nifty and Sensex for the next 1-2 years," Bhansali advised.
"Since the last 2–3 years, it (the chemical sector) has been a challenging time, and hopefully the tides will turn soon. In fact, the companies that are delivering good returns are not rewarded by investors," Bhansali said.
"A large part of it also depends on how the Chinese companies behave in this sector, as they are the price setters," he said.
Watch The Full Conversation Here:
Edited Excerpts From The Interview:
To your mind at Ambit Asset Management, how has Q4 shaped up? Has it been according to expectations or did it miss a trick or two?
Sushant Bhansali: So far, just a couple of results are pending from across our portfolios. So far, the results have been satisfactory. I think in line with our expectations. A few results probably ahead of our expectations and probably a miss in one or two, but overall satisfactory results from our perspective.
From a market-wide perspective, do you think the results and commentary give confidence about FY25 performance on the earnings front or are there question marks there?
Sushant Bhansali: So FY20, I think we had a blast of almost 20% earnings on Nifty. If you look at after a good FY23 and of course FY22 because of the base effect was also high teens. So, overall good three years of 15% plus growth on Nifty earnings.
We believe that there might be some consolidation up there for FY25. So probably FY25 will have slightly lower than the last three-year average and we can see probably less than 15%.
There'll be some challenges. The global economy has been a bit challenging in the last few quarters and that should have an impact on the Indian economy as well. So far, the GDP growth in the country has been quite a blast for the last few quarters.
But gradually as we are seeing the sales growth is getting a bit dampened over the last two or three quarters, while PAT growth was not that impacted because of inflationary pressures easing out.
But FY25, I think we'll have to see how the monsoon plays out and what are the government's priorities once the government is formed, to take a better view on things in FY25.
Sushant, do you believe that the street at large has prized in policy continuity or a stronger verdict could be a surprise which could make an expensive market, maybe become even more expensive in the sentiment and momentum?
Sushant Bhansali: Of course, if the results go much beyond what has been talked about, I think, currently pricing in is that the current dispensation continues and there is a continuity of policies with a decent margin.
But if there is a big blast on the election result day and we see the real 400 plus sort of majority, there might be some momentum still playing away for next few days or weeks as well keeping the market, where it is and going further beyond. Definitely, that can be the case.
But most of it, I think, as everyone is expecting, is priced in already. We had a great run. I think in the last two or three weeks from the lows of 9th May—the recent low—the market has been just one way ahead. So lots of positivity has already been priced in, is my view.
At these valuations, would you be skeptical even if the result is of a strong policy continuity, or do you believe that keeps the market at elevated levels?
There is also concern about rates going ahead. The EU yesterday said two rate cuts are coming up from June for consecutive months. Do you think that is driving flows towards emerging markets and India? Could that keep valuations elevated?
Sushant Bhansali: Yes, definitely if interest rates start coming down, then we will certainly have good flows from global investors and that should definitely add fuel to the fire, which is currently going on in the markets and definitely because it's mostly domestic liquidity which has driven the markets for the last many quarters. And if we get good support from global liquidity, then definitely another 10–15% from here, or especially on the large-cap side looks quite doable.
What do you think about financials now? One, RBI’s large dividend, plus the JP Morgan Bond inclusion might help PSU banks.
Two, those bullish on private banks present the valuation argument in favour of private banks, while naysayers raise credit growth concern. What is your stand?
Sushant Bhansali: Definitely it's a value buy, if you ask any investor in today's context where the valuations are looking very reasonable and where the earnings growth is good.
There are a few sectors where probably let's say sectors like IT, where the momentum has been a bit dampened. That's where the valuations are reasonable as well.
But banks offer a great opportunity where the fundamentals, the earnings and everything is in order. Only the valuations of the private sector banks have been almost at a decadal low. So, it offers a great opportunity for investors with a long-term mindset on quality franchises to make money still at these levels of Nifty and Sensex with the next one or two years in perspective.
Are you guys invested in chemicals, specialty chemicals, or agro Chemicals as a space? Why or why not?
Sushant Bhansali: We have been investing in the chemical sector and specialty chemicals, in particular, for quite a long period of time.
Since 2016, we've been investing in that sector and made tons of money for our investors between 2017 and 2022. Of course, the last two or three years have been challenging, but someday, probably times will turn.
In fact, companies which are delivering good earnings are not getting rewarded by investors. Their companies have delivered 25–30% earnings growth for the last few quarters, every quarter, but they're still trading at the same prices as they were two and three years back.
So definitely the sector has been sort of out of lay for investors. When the sector is discarded, even the good ones get neglected and we hope that few of these companies, which have been doing better than others, as soon as the sector momentum comes back, they will be rewarded much more by the investor community. We are definitely very positive.
The only thing I would say is that this bottoming out of the numbers, especially as part of it, is dependent on how the Chinese companies behave in the sector because they are the price-setters in the global context.
All said and done, especially in commodity, the margins are a slave of how the price movement globally of basic commodity prices move. And from that context, it's like similar to the interest rate cuts which we have all been eagerly waiting for last many quarters—that next one or two quarters we will see rate cuts starting and it's always one or two quarters. So, I think, chemicals is going through a similar sort of phase and we hope that it has bottomed out and probably one or two quarters ahead we will see good earnings growth.
But there are good companies, which have been delivering good numbers and there are few especially in this quarter where I would say that the margins have slightly inched up. I hope it's not one-time and we'll see them improvising on the margins going forward.
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