Puneet Sharma of Whitespace Alpha explains why he is bullish on FMCG, automobile

In an interview with Moneycontrol, Puneet Sharma, CEO and Fund Manager at Whitespace Alpha said he expects double-digit earnings growth in FY25 which may be limited to 12-13 percent over FY4.

Further in FY25, he expects defence and infrastructure sectors to benefit from the government capex push. “I’m also bullish on the FMCG and automobile sectors deriving positive momentum from the better-than-expected monsoon,” he said.

Puneet, who has over 15 years of industry experience specializing in quantitative analysis and statistical modeling, expects IT to continue to be a laggard in FY25 with the pressure on the sector visible through the compression of the operating margin, to the tune of by ~300-400bps, in most heavyweights.

Do you see earnings growth slowing down in FY25 and FY26, compared to FY24?

The overall earnings ratio of the NIFTY50 at 21-22x of earnings is still comparable to pre-Covid levels. While this is a high valuation in comparison to other economies, for a high growth and stable economy like India, I expect these levels to be sustainable in the medium term.

In the smallcap and midcap spaces however there has been a significant rise in price to earnings ratio (55 percent and 59 percent respectively). While I do expect these sectors to grow along with the economy, I don’t believe they would justify such high valuations and expect some normalization in the coming years.

What are your expectations for Nifty 50 earnings growth for the current financial year and which are the sectors at driver’s seat?

Unless there is a major economic shift in India post-elections, I expect double-digit growth this FY25 which may be limited to 12-13 percent. In terms of specific sectors, I expect IT to continue to be a laggard with the pressure on the sector visible through the compression of the operating margin, to the tune of ~300-400bps, in most heavyweights.

On the plus side I expect the Defence sector to benefit from the government capex push with the FY25 allocation being 20 percent higher than FY23. I also expect the Infrastructure sector to continue to benefit from the government’s capex investments and expect an increase in private investments once there is certainty in the government formation. I’m also bullish on the FMCG and automobile sectors deriving positive momentum from the better-than-expected monsoon.

Do you expect the block deals as well as IPOs to increase significantly over the next 12 months?

In FY23-24 we saw 37 percent increase in inflows through IPOs and FPOs. There will be another wave of block deals post-elections, with the industry awaiting clarity on government policy based on results. However, post that, I see lower interest in the market towards corporate actions or IPOs other than a few large ones from the technology sector such as OYO and OLA.

Do you expect any major change in government policies post general elections results?

This would be completely dependent on the election result and the mandate received by the government. Assuming the incumbent government is able to get a majority, we can expect continued investment into infrastructure, and defence spending as well as a push for self-reliance aiding manufacturing and ancillary industries.

The full-year budget will give a clear picture of the government’s direction in terms of spending and policies. However, if the govt is formed with the lower mandate, there will be some uncertainty regarding how government shapes its policies with one eye on coalition partners. If there is a change in government, I will be in wait-and-watch mode for the next couple of quarters till there is clarity on the policy objectives of the new government.

Is it time to stay away from cement stocks?

Although FY25 cement demand is expected to be supported by robust infrastructure projects and steady housing/commercial segments, it is projected to be lower than FY23-FY24 levels. The cement demand to GDP multiplier has moderated to the long-term average of around 0.9x vs 1.2x in FY24. This is on account of a reduction in prices and while this will continue in the near term, it could be offset by lower costs and operating leverage benefits for certain companies.

We are neutral on the sector. Our belief is that the slowdown should be shorter than in earlier years, primarily because private-sector housing has also picked up momentum.

Have you changed your bets after the ongoing March quarter earnings season?

We have a long-term bullish view of the Indian economy and therefore continue to be invested in the stock market, ignoring short-term movements/volatility. As an AMC, we de-risk our portfolio by diversifying positions into a wide basket of sectors thus ensuring low risk and consistent return for our investors. However, based on my personal analysis, I believe Banking, Automobile and Metals have demonstrated great growth with strong fundamentals and capex additions in other core sectors should drive overall growth. The only surprise was the results from the IT sector further accentuated by the lack of clarity on when the US Fed will initiate policy rate cuts which can spur some momentum for the sector.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.