Avenue Supermarts Valuation Concerns

Chola Securities Research Head Dharmesh Kant stated that Avenue Supermarts, despite potential short-term gains, presents an unfavorable risk-reward profile for long-term investors due to its steep valuation. He also identified Lemon Tree Hotels as a trading opportunity and expressed optimism regarding the commodity sector.

Kant highlighted that Avenue Supermarts (DMart) is trading at 75-80 times one-year forward earnings, while its profit growth is projected around 24-25% and operating margins near 8-8.5%. He deemed this valuation unsustainable for the current growth trajectory, advising against fresh long-term entries for two to three years. He anticipates a limited near-term pop of 10-15%.

Lemon Tree Hotels: A Trading Play

Regarding Lemon Tree Hotels, Kant noted that valuation clarity is still pending, although the tourism and travel sector outlook remains robust. He suggested that investors could consider the stock as a short-term trading opportunity, with a reassessment possible once valuations become clearer. The hotel sector, structurally, is expected to perform well over the next three to five years.

Commodities as a Structural Theme

The commodity theme is supported by a stable dollar index and anticipated global interest rate cuts, making 2026 a potentially strong year for commodity producers. Kant specifically named Hindalco and Vedanta as key beneficiaries of rising aluminum and copper prices, with Vedanta also poised to gain from increased Hindustan Zinc output. For steel, JSW Steel remains a preferred pick due to protection from safeguard duties. He cautioned that short-term volatility should be expected.