Markets are likely to remain in wait-and-watch mode until we get some clarity on US tariffs. US reciprocal tariffs are due to be implemented early April and things may settle down in a month or two from then.
As things stand now, auto and pharma exports appear vulnerable and on the import front, high end discretionary consumption items including alcobev, premium cars, high end clothing etc may be vulnerable. Its however too early to come to any firm conclusions, and that might keep markets jittery.
Downgrades have caused FY24-25 earnings growth estimates to drop from 15% to 5%, but growth estimates for FY25-26 continue to project 15% growth. These numbers could change, once we have a better sense of actual impact of tariffs.
Based on current earnings estimates for FY25-26, large caps are now trading a bit below long term averages while mid and small caps are still above their 10 year averages.
FMCG is in a sweet spot today on the back of demand recovery and reasonable valuations. ITI MF’s new Bharat Consumption Fund is now 70% invested and is focusing on this sector to generate alpha.
Within pharma, CDMO companies appear more promising than generics exporters and domestic pharma manufacturers. Hospitals continue to look attractive, albeit at slightly elevated valuations.
Rohan expects FMCG and other domestic consumption themes to lead the next phase of this secular bull market, with chemicals also looking poised to finally come out of their long slumber with robust growth in coming couple of years.