Ambareesh Baliga suggests the market downside is limited, projecting a range between 24,800 and 26,200, influenced by potential US-India tariff agreements. He anticipates positive surprises in the BFSI, FMCG, consumer durables, and specialty chemical sectors, driven by tax cuts and the China plus one strategy. Baliga recommends a cautious approach, favoring sectors showing 'green shoots' over immediate bottom fishing.
, Independent
Market Analyst.
In fact, from a market perspective I do not see too much of a downside for the market. Possibly 24,800 should be the low at least in the near future and I see a broad band of between 24,800 to 26,000, 26,200 and that should be achieved possibly when the
tariff agreement happens between US and India.
As far as earnings is concerned, disappointing no doubt, but then the best part is the analyst expectation is decently low. So, that is what is supporting the markets to a large extent despite the earnings which we have seen in the recent past.
We could see surprises in the BFSI space, especially from the banking space. We could see some surprises from the FMCG and the consumer durable pack because clearly the tax cuts which we had in the budget, that would have played out to a certain extent in the first quarter, so that should get reflected in both these sectors. So, these are a couple of the sectors where I see some surprises and possibly in the speciality chemical space where again we could see an uptick.
But it like you said, overall could be a disappointment, but then that has been already factored in to a decent extent. So, because of those earnings, I do not see a major cut in it. Yes, we could see some correction, I mean as and when the earnings are announced, but there may not be a major cut.
It could be a wait and watch for the next one or two quarters because I do not see it really bouncing back vigorously from these levels. Whereas there is like decent amount of picks which you can have from the other sectors where you could see a decent movement. So, does not make sense buying into it right away. Let us start seeing some green shoots. So, maybe I mean you may have to buy about 5% or 8% higher, but it is better to buy when you start seeing green shoots than buy at this point of time.
See, in pharma from time to time you have President Trump talking of extra tariffs, the recent one was the 200% tariff and that is what spoils the mood in this space, but then my feel is that he may talk about tariffs, but the final implementation could be very difficult because end of the day you cannot keep increasing the cost of healthcare for the US citizens and there can be a huge backlash if that happens. So, he may talk, but he may not be able to implement that.
So, the pockets which I would look at are the ones which have a decently large exposure in US and have been under pressure because of all these talks. So, stocks like Sun Pharma, Dr Reddy’s these are the ones I should be looking at.
But you did talk about the speciality chemical plays that are looking interesting to you but it is a big basket of stocks that are there and companies also have their niche. Yes, of course, we are seeing the stocks moving higher within the chemical space, but help us understand that what factors could be at play for the chemical and especially the speciality chemical side of business and along with that within that any particular pocket that is looking interesting to you?
Ambareesh Baliga: The China plus one story starts playing out, but at that point of time although we had that niche in specific speciality chemicals, but then we did not really have that scale, but then in the last about four years we have seen a lot of these companies have built up that scale and we are today among possibly the top three-four manufacturers in specific niche areas and that is what should play out over the next couple of years. So, stocks like Deepak Nitrite, Vinati Organics, SRF are the ones that should be looked at.
What is your own preference within the realty pool, and do you still think there is value on the table and the stocks have further headroom to go up?
Ambareesh Baliga: No, in fact, in the realty space as far as premium housing is concerned that is finally getting saturated. We had an extremely good move in the premium housing space in the last two to three years. But now at these levels it is getting a bit saturated. Inventory levels are building up. But the space where there is value, there is opportunity is the affordable space and especially looking at the way RBI has reduced rates, the direct effect would be on the affordable housing and with further rate cut which is expected in December that will be another booster.
So, the companies which are in affordable housing should be looked at and that space should play out at least for the next one-and-a-half, two years. So, you have companies like Sobha, Puravankara which are there in that space. A smaller player like Arihant Superstructures which is based in Navi Mumbai, these are the ones to be looked at.
What is the take on the likes of an Eternal and Swiggy both? While it seems like clearly valuation comfort is more for Swiggy, but the preferred one, of course, has been Eternal or erstwhile Zomato. But again, even Eternal has been in a very sort of range bound move from that 220, 230 odd level to 270 thereabouts.
Ambareesh Baliga: In fact, if you look at the growth which this space is showing and especially both these companies, but then again my preference still would be Eternal because that is where they have been more aggressive as compared to Swiggy and in fact, like if you are talking of the next possibly four to eight quarters, clearly I see the margins improving from here on because the space has caught on extremely well with the consumers and there is no way people would go back. So, Eternal can still be bought at these levels. We have seen a decent amount of consolidation. Maybe in the next quarter or two we should start seeing a decent up move.
You were talking about as to how BFSI is the other segment where you think the positive surprises would come in. Where within BFSI do you think the earnings recovery or earnings surprises would come in?
Ambareesh Baliga: In fact, in BFSI space it would be more on the pure banking space, like the PSU banks and the private sector banks, that is where I see some amount of recovery and again, I would say that over the next two to three quarters we should again start seeing the credit growth happening, may not be in the last quarter but the quarters going ahead we should really see the credit growth happening.
But I would be a bit cautious as far as the NBFCs are concerned because the pockets especially the retail part of it is the one where I am a bit cautious. So, NBFCs I would possibly not buy right now but the PSU banks as well as the large private sector banks are the ones I would concentrate on.
Also, help us with your take on the railway counters because of late in the market up move and especially after that sell off we have seen from April and May lows, all these railway related counters along with defence rather they have been doing well and every day we are seeing new news flow coming in. In the latest, we have RailTel of a new order win. But help us with your own sense, what are you really pencilling in with respect to railways and given the up move are the valuations justified?
Ambareesh Baliga: In fact, I am finding the valuations are a bit expensive at this point of time. I mean, there is no doubt that if you are talking of very long term, the next four-five years, both defence and railways should do extremely well, but the issue is in the short to medium term, especially medium-term because the short term you will still have the sentiments positive because the order flows which are there, but in the medium term the issue would be on delivery, on execution which not too many people are talking about.
They have got huge orders, but how will they execute, I think that is the big issue and that issue is mostly on the defence side of the market because quite a few of them have got order books full for the next six-eight years and if they are not able to increase their capacity and deliver, that is where the issue would happen. We have already seen that happening in HAL to some extent, that we should see across the other companies.
