Banking, capital goods and consumer surables segments among favourable investment landscape, here's why

As FY25 begins, the marketplace grapples with assorted challenges. These encompass volatility linked to nationalist elections, accrued tensions successful the Middle East, prolonged planetary inflation, slowing net growth, and precocious valuations. These factors whitethorn power near-term performance.

Despite facing challenges, the Indian system remains resilient. Forecasted GDP maturation of 7% successful FY25 could surpass expectations, fuelled by robust backstage and authorities capex, overseas investments, and agrarian economical enhancements propelled by La Nina. This creates a favourable situation for dependable home concern and net growth, albeit little than the three-year CAGR. When scrutinizing sector-wise performance, Banking, Capital Goods, Consumer Durables, Defence, FMCG, Infra, and IT sectors look arsenic favourable concern landscape.  

With regards to the banking sector, we expect a displacement successful the RBI's involvement complaint argumentation towards an accommodative stance successful H2CY24, coupled with the expected continuous maturation successful backstage capex, is poised to thrust growth. However, liquidity constraints persist, prompting banks to question higher fixed deposit rates. Despite backstage capex falling abbreviated of expectations, recognition maturation maintains stability. We similar backstage banks compared to nationalist banks. 

The imaginable for superior goods remains resilient, arsenic continued concern and infrastructure investment, alongside heightened allocations successful textiles, operation materials, metallic products, and machinery, is expected to substance important bid inflows. Despite concerns astir borderline contractions owed to circumstantial earthy materials and premium valuation, the net maturation forecast for FY25 stands astatine 25% for S&PBSE Capital Goods Index, with projections indicating higher net successful the 2nd fractional of FY25, making the assemblage a bully concern opportunity.

Consumer durables assemblage is poised for a robust maturation fuelled by rising temperatures driving aerial cooler, aerial conditioner, and instrumentality sales. Stabilizer and inverter request to surge owed to powerfulness fluctuations, portion continued momentum successful existent property & operation to boosts cables, wires, and power gears demand. BSE user durable scale gross to summation by 19% YoY, with EBITDA and PAT expected to emergence 31% and 37% YoY, respectively, alongside an 80-100 bps borderline expansion. However, premium valuation for sector, (P/E of 55x, versus 10yr & 5yr averages of 36x & 43x), suggests a selective approach.

The GoI's prioritization of self-reliance has notably bolstered the defence sector's outlook. Strong maturation prospects for FY25 are underpinned by robust bid books, effectual execution, investments successful probe and development, and advancements successful technology. Import constraints connected defence items question to trim dependency and alteration the import expenditure, thereby favouring home producers. Furthermore, with a planned authorities concern of USD 130bn betwixt FY24-FY30, projecting a astir 7% CAGR for equipped forces modernization, optimism prevails though valuation of stocks is high. 

With assurance prevailing, a "buy connected dip" strategy is advised for the FMCG sector. Anticipated request rebound is expected to hap gradually, arsenic contention pressures easiness with stabilized input prices. A favourable progression successful the monsoon play would further augment this scenario. FY25 is forecasted to commencement with debased double-digit maturation successful some gross and EBITDA and postgraduate successful the aboriginal period. Additionally, a flimsy borderline betterment is expected, attributed to stagnant prices, and expanding crude prices. The manufacture show was dull successful the 1.5yrs starring to an charismatic valuation. 

When it comes to Infra sector, the anticipated easing of cardinal involvement rates by the RBI is poised to stimulate spending, bolster profitability margins, and fortify the equilibrium sheets. The GoI’s augmented superior expenditure for FY25 to Rs11.1tn, on with a projected 7% GDP maturation for FY25, paints a affirmative outlook for the sector. Additionally, the mean capableness utilization level of 74.7% successful Q3 FY24 indicates a resurgence successful backstage superior expenditure successful the forthcoming years. Business outlook is robust portion valuations are adjacent the semipermanent mean a decent prime successful an costly market. 

Lastly, we besides stay optimistic astir the Indian IT manufacture connected a semipermanent basis. However, our stance remains neutral for the abbreviated word since the assemblage volition proceed mean gross maturation successful the adjacent word connected concerns implicit macroeconomic conditions and inflationary headwinds. Yet, operating profits are expected to amended with outgo optimisation measures. Despite headwinds, captious spending and outgo optimisation deals proceed to summation traction. The rupee-dollar speech complaint tin importantly power the sector, with INR depreciation against USD. Long-term investors should follow an accumulation strategy, focusing connected companies with beardown equilibrium sheets, peculiarly those progressive successful AI and Gen AI technologies with beardown woody wins.

In short, portion challenges persist, opportunities abound crossed assorted sectors of the Indian system successful FY25. By navigating complexities and leveraging emerging prospects, investors tin presumption themselves to capitalize connected India's dynamic economical landscape.

The author, Vinod Nair is the Head of Research, Geojit Financial Services.

Disclaimer: The views and recommendations supra are those of idiosyncratic analysts, experts and broking companies, not of Mint. We counsel investors to cheque with certified experts earlier making immoderate concern decisions.

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Published: 28 Apr 2024, 05:12 PM IST