Infrastructure To PSU Banks: Emkay's Manish Sonthalia Bullish On These Sectors After RBI Rate Cuts

The Reserve Bank of India's recent rate cuts can lead to a significant rally in the markets, according to Manish Sonthalia, chief investment officer at Emkay Investment Managers.

The analyst also outlined that sectors like real estate, capital markets, infrastructure, travel and tourism, and PSU banks are likely to gain from the RBI's move due to asset price inflation, among other factors.

"Post the RBI's front-loading of rate cuts, both on the CRR as well as the 50-basis-point repo rate cut, has created ample ammunition for the markets to go up and maybe, it is going to overshoot fundamentals," he told NDTV Profit in a conversation on Thursday. "I think there's enough liquidity and there's going to be enough appetite for stocks."

In terms of investment strategy, the analyst also outlined specific sectors set to benefit from the current environment of lower capital costs and ample liquidity. Sonthalia believes the RBI's move will fuel asset price inflation, particularly in sectors like real estate, capital markets, infrastructure, travel and tourism, and PSU banks.

"I believe there's going to be massive asset price inflation," he asserted, suggesting these sectors are poised for significant gains. He also noted that his firm is making "contra buys" in the pharma and IT sectors.

The benchmark Nifty has seen gains hovering around 2% to 3% over the past three weeks, while broader markets have outperformed. Small-cap indices are up 14% and mid-cap indices up 11% year-to-date, compared to the Nifty's 5% rise, the analyst noted. "The action definitely remains in the broader markets," he said. 

However, he cautioned that the relentless primary issuances, including IPOs, qualified institutional placement and promoter selling, remain the "only headwind" that could absorb significant liquidity and hamper the rally.

"That sucks out a lot of liquidity from the markets and that's the only headwind that you have in the market. Otherwise, the macro, the fundamentals, fourth quarter numbers, etc., have also been pretty decent vis-a-vis expectations," he said. "All in all, the markets will go up more bullish than what the scenario was in the previous three to four months."

Regarding the ongoing conflict in west Asia between Iran and Israel and its impact on oil prices, Sonthalia argued that India is relatively insulated. He downplayed the long-term impact on crude oil prices. 

The "fundamentals of crude oil are definitely bearish" due to a slowing Chinese economy and challenges in the US.

"Barring short-term spikes in oil prices, I really don't see that $80 and beyond crude oil prices will sustain in the current scenario," he said. The analyst added that India has diversified its oil imports away from Iran since 2020, substituting much of it with discounted Russian crude. 

However, if more countries join the conflict and the situation escalates, then "all bets are off the table", he suggested.