How do you view the market at the moment after the sharp decline seen in the past three odd months? Are current valuations attractive? And how do you see future revenue growth? Are you there?
Sanjay H. Parekh: In other words, profits are basically weak. Nifty companies’ performance was sluggish in the first quarter, and the second quarter was also sluggish. And the third quarter also looks lukewarm on a top-down basis. It can also be weaker in certain sections. So earnings have been pulled down since Q2, but broadly speaking, we expect to end this year at $1,050 and next year around $1,200.
So what we think is that the price correction is almost complete. We could probably see a small bit here and there around 23,500, but then the risk return will be favorable, but the market will focus on Q3 earnings which will be weaker as we are seeing at the moment, so time corrected. may occur. And the outlook for the fourth quarter should be better, which will be the base for next year.
In addition to the weak second-quarter numbers that we saw, there are also some global headwinds, such as a rising dollar index, Trump’s tariffs, or the Fed’s lower interest rate cuts. So what will move the market needle going forward?
Sanjay H. Parekh: First, on a positive note, I have never seen, at least in my career, that all of India’s balance sheets are very, very strong. We’re in a very, very sweet spot in the world. Indeed, perhaps best of all, the government’s balance sheet on the deficit will show a roadmap to further reduce the deficit and a deficit reduction glide path that portends lower interest rates.
RBI does have a very strong balance sheet and a very good balance of payments position. A company’s balance sheet has the lowest leverage. Bank balance sheets are at an all-time high. There has been some progress in the areas of microfinance, PL and credit cards. This means that credit costs will increase gradually, but not out of control. And household balance sheets are impressive, at least at the top end. Yes, the rural areas and lower tiers do have problems with their balance sheets in that they are not spending as much as they should.
So overall, the balance sheet is very strong. The short-term slowdown in GDP and revenue growth, due in part to the lack of government spending, suggests a real setback.
As recently as last month, in the third quarter, capital spending showed some recovery. So the fourth quarter will be very important for government spending to pick up and some of the state capital spending will also pick up based on each state’s capacity and balance sheet, so it will be very important in forming the basis. . . And I’m very hopeful that the fourth quarter will be better, but it’s certainly going to take some time.
So which sectors should we focus on in 2025? Should investors own these stocks or sectors at least into 2025, given their potential to outperform the broader market?
Sanjay H. Parekh: So one of the things that we believe is that we’re going to have some backend revenue this year. All in all, if we can get 11-12x on Nifty, it would be 24,000x if we calculate the 2025-2026 earnings at Rs 1,200 and assuming India as a whole should be around 20x. Next, move on to 26 and 27. It’s a little early, but roughly speaking, the growth rate if you take 1350 for nominal GDP should be the approximate profit.
As I said earlier, it’s still a little early, so let’s look at 27,000 people, that is, after March next year. We could expect a return of 14-15%, or 11-12% annualized, over the next 15 months, so that should be the expected return, and the backend based on our Q4 outlook. It will be something like:
And the global scenario is also very fluid. Regarding sector bets, we are overweight domestic and underweight global. Overall, it’s worth it as long as you haven’t used IT in the past 6 months.
I’ve reduced the underweight, but I still like the discretionary space. There may be a slowdown in the short term, but if you think about the long-term business, it shouldn’t slow down that much.
We love banking. I like the overall financial situation. Among them, banks, we prefer big banks. We also like capital goods. Dear pharmaceutical company, we were mildly overweight. We are underweight FMCG, significantly underweight, and actively accepting calls. We are zero oil and gas. Also, the telecommunications business is overweight.
Logistics, we are overweight. Power and utilities, we’re overweight, so that’s how we think. But this will all be based on ratings. You can manipulate sectors based on attractive valuations for each sector.
Also, you talked about sectors, will 2025 be a year where the broader market outperforms, or will large caps take center stage given the kind of sell-off that is happening by large cap FIIs? Will it appear?
Sanjay H. Parekh: So you said it right. FII ownership is in large caps and that is where the sale will impact. We discussed that valuations are a little bit backward, but I think there are too many funds when you look at small and mid-cap stocks that are doing really well. Direct funds, retail funds and mutual funds are getting more flows and huge interest. Participation in QIP and excitement at IPO were seen.
The oversubscription shows that higher cash levels in these schemes are chasing less supply. This is certainly clear.
So our strategy is that valuations need to be reasonable. We are GARP investors. Our average portfolio price/earnings ratio is 15.7x as of 26th, and ROE and growth potential are higher than Nifty. Therefore, our strategy is to be selective, stock specific, have a higher margin of safety, and not overinvest in growth.
Although the company is taking a slightly cautious stance regarding the cement sector, given that domestic capital investment is expected to increase in the future and demand for cement is also likely to pick up, pricing will likely be relaxed. Don’t you think it’s happening? However, the price of metal raw materials is not at its lifetime high either. So, is it possible that the situation in the cement sector will improve in the future?
Sanjay H. Parekh: So we’re watching that closely. In other words, we are never looking back. Otherwise, the second quarter was very weak, which is always seasonally weak. However, in the third quarter, pricing power was still not enough, with total utilization still at around 70%, indicating that there was a lot of supply, which was already in full swing, and demand was not as high as needed. Masu. For appropriate price increases.
So we’re very careful and open about it. However, our concern is that there is still not enough pricing power. The larger cap is where we are comfortable with price-wise, and we think it will definitely be 1300-1400, at least considering the EBITDA per tonne.
But even if you get a quote of 1,000, 1,100, the higher the limit, the cheaper it won’t be as you expect. So I think, at some cost, we will definitely be looking at cap expansion that will lead to consolidation across the cement industry. And integration will take time and won’t happen soon. So it may take a little longer. Therefore, we want to buy them at a price.
