Sector Strategy Favors Domestic Demand
Dharmesh Kant, Head of Research at Chola Securities, has outlined a strategic investment approach focusing on sectors poised to benefit from domestic growth drivers over the next six to nine months. Kant specifically highlighted cement, metals, and banking as areas of significant bullishness for his firm.
Cement Sector Outlook Positive
In the cement industry, recent financial results have broadly met expectations, bolstered by consistent volume expansion and a steady, albeit gradual, improvement in pricing power. Kant anticipates industry volumes to grow in the high single digits for the fourth quarter, coupled with a 2-3% increase in blended prices in the near term. While prices might trade within a defined range for a few more months, he sees compelling value for investors with a longer holding perspective, suggesting a positive outlook for cement companies throughout the year. UltraTech Cement remains a top pick, with potential for 15-20% returns over a three-to-six-month period, despite anticipated limited near-term price appreciation.
Caution Advised for Autos and Exports
Kant adopted a more reserved stance on export-oriented sectors, such as textiles. He pointed to trade uncertainties involving the US and Europe as factors likely to keep profit margins under pressure, even with the relief offered by currency depreciation. "Oversized opportunity looks unlikely in the near term," Kant stated, indicating a potential waiting period of six to nine months for substantial improvements.
Metals Show Resilience
Within the metals segment, Kant expressed constructiveness, specifically on JSW Steel. He cited the company's strong execution, increasing market share, and operational efficiencies as key drivers. Recent price increases and the implementation of safeguard duties are expected to support earnings going forward.
Automotive Sector Faces Trade Deal Scrutiny
On the automotive front, Kant advised a cautious strategy, particularly due to the prospect of reduced tariffs on European car imports. Such a move could intensify competition for domestic manufacturers. Major Indian players like Mahindra & Mahindra, Maruti Suzuki, and Hyundai could face a more challenging market environment. However, Kant stressed that critical details of the prospective trade agreement, including whether it pertains to electric vehicles (EV) or internal combustion engine (ICE) vehicles, are still pending. A more definitive analysis awaits the "fine print" of the deal. Given the recent rally in auto stock prices and the prevailing uncertainty surrounding the trade accord, a cautious approach is recommended.