Largecaps over SMIDs: Ambit’s Nitin Bhasin and Bharat Arora share their Samvat 2083 strategy
As we step into the new Samvat, investors are advised to take a more cautious stance with their portfolios. The focus should be on large-cap stocks and the banking sector due to their better earnings prospects and attractive valuations. Meanwhile, although mid- and small-cap sectors may face hurdles, the cement industry might see unexpected margin improvements.
In the current economic climate, Nitin Bhasin and Bharat Arora, key figures at Ambit Capital, advise investors to adopt a defensive stance in Samvat 2083. They favor large-cap stocks, banks, and debt over expensive mid- and small-cap stocks, as earnings growth faces further challenges. This shift is driven by heightened input costs impacting large-cap margins and the expectation of a slowdown in India's economic growth, which they anticipate extending until the fourth quarter of fiscal year 2027.
Banks are highlighted as a standout sector due to robust credit growth, pristine asset quality, and reasonable valuations. The sector is bolstered by rising credit growth outpacing deposit growth, strong balance sheets, and improving net interest margins. Despite the potential for additional repo rate hikes, analysts remain cautious about the sector's potential due to uncertainties like El Niño and macroeconomic fluctuations.
Cement is identified as a potential dark horse in Samvat 2083, with an emerging recovery in cement spreads as a key earnings trigger. The recovery is anticipated due to reduced fuel costs, though recent geopolitical tensions have pushed up pet coke and coal prices, compressing cement margins temporarily. A bottoming out of cement spreads is expected, coupled with potential margin recovery due to improved realizations and product mix.
For a five-year investment horizon of ₹10 lakh, the recommended allocation is 50% in large-caps (preferably firms with reasonable valuations and resilient earnings estimates), 20% in debt (attractive due to near-cyclical peak interest rates), 15% in mid- and small-caps (with a limited exposure due to stretched valuations and potential moderate earnings growth), 10% in gold (as a portfolio hedge), and 5% in international equities for diversification.
Potential adjustments might include increasing SMID exposure if valuations normalize and earnings visibility improves.
Regarding gold, Bhasin and Arora recommend holding existing allocations rather than adding more. They see gold as a structural hedge against factors like global debt levels, fiscal deficits, currency diversification efforts by central banks, and the long-term purchasing power of fiat currencies. The recommendation is for investors to maintain disciplined portfolio-level allocations to gold, rather than chasing short-term price movements.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
