Demeter Advisors' Ashwini Agarwal Expects Chemical Stocks To Shine In 2025

Chemical stocks may not turn multibaggers in the current market scenario, but are well-positioned to give 15-20% annualised returns once the "normal cycle" comes up, according to Ashwini Agarwal, founder of Demeter Advisors LLP.

In an exclusive conversation with NDTV Profit, Agarwal shared his investing ideas for early 2025, saying that the compression of margins and price to earnings in chemical companies are set to return to normal.

"A lot of chemical companies have seen compression in margins and have seen lower revenues partly because prices of the products have corrected and partly because the end markets were oversupplied in the aftermath of the Covid-19 stocking binge," he said. "Those things will return to normal, and I think there is an opportunity there."

He said that the market was paying up to 80 times PE multiples in 2021-22 on the back of stellar earnings for a lot of the chemical stocks. "I think you are running into the danger that if earnings disappoint you have both earnings contraction as well as PE contraction, which is what has happened to chemical companies," he said.

However, the situation has now changed, the Demeter Advisors founder added.

"You had restocking then, and you had destocking now. I think going ahead, you have a very normal cycle coming up. You probably have earnings that are depressed. You have PEs that are not so depressed, but if earnings catch up, then I think they are going to make money," he explained.

Agarwal said that while these stocks may not turn into multibaggers, one can expect 20% annualised returns. "Are you going to make a sort of multibagger? The answer is no. But will you make a 15-20% annualised return? I think you will, and I think that is a very reasonable return to look for even where the market is," he said.

Talking about the real estate space, Agarwal said that real estate cycles tend to be long. "A bull cycle tends to be at least three to five years long and a bear cycle can be seven to 10 years long and I would say that we are kind of somewhere in the middle," he said.

This can also mean that stock prices and demand can pause in the middle of a real estate cycle. "But have I given up on real estate? I don't think so," he said.

Real estate ancillary businesses may do well, but Agarwal said valuations "will remain moderate".