Amid Volatility, Outlook For Market Remains Positive In Long Run: Anand Rathi

The outlook for India's stock market remains positive in the long run, even though short-term market volatility has increased, according to Anand Rathi report.

This has been driven by factors like geopolitical tensions, fluctuating crude oil prices, and adjustments by Foreign Institutional Investors (FIIs) due to China's recent economic stimulus.

Although the ongoing Iran-Israel conflict poses a global risk, crude prices are unlikely to stay above USD 88 to 90 due to weak international demand.

Additionally, strong domestic investments continue to support the market. While high-frequency data suggests a slow second quarter, upcoming festive and wedding seasons, combined with a favourable monsoon and better Rabi crop prospects, are expected to boost demand in the second half of FY25. This growth will also be aided by increased government spending.

Despite short-term fluctuations, the long-term growth story for India remains intact, with sectors like discretionary consumption, two-wheelers, IT, cement, and large banks still favoured for investment.

The second quarter is likely to show mixed results due to factors like heavy rainfall in August and September, which disrupted certain sectors, including agrochemicals and commercial vehicle sales.

The extended monsoon and slow festive sales could further impact growth. Infrastructure projects and cement company volumes may face delays due to upcoming elections, erratic weather, and slow budget allocations.

However, some sectors, including hospitals, alcoholic beverages, two-wheelers, jewellery (benefiting from customs duty cuts), and consumer durables, are expected to perform well. On the other hand, global sectors like metals and oil and gas may continue to lag.

This quarter is likely to see subdued margin growth in areas like agrochemicals, cement, retail, and metals due to pricing pressures.

Conversely, sectors such as auto, paints, alcoholic beverages, and select consumer goods may see margin improvements through premium products and strategic price hikes.

Banks may experience softer margins due to seasonal factors and tight liquidity, while non-banking financial companies (NBFCs) could see higher credit costs impacting their margins.

Although oil and gas may face ongoing margin pressure, sequential improvements are expected due to better marketing margins.

Despite the challenges in the first half of FY25, the second half is anticipated to be stronger with the normalisation of economic activities.

While global events have increased short-term market volatility, the long-term outlook remains promising, with Nifty50 expected to achieve 11 per cent earnings growth in FY25 and 14 per cent in FY26.

Excessive rainfall in August and September has affected Q2 results, particularly for the agrochemical sector, leading to fewer applications of herbicides and insecticides.

Despite these challenges, improved soil moisture levels and water reservoir conditions indicate a favourable outlook for the upcoming Rabi season.

Revenue growth for Q2 FY25 is projected at 7 per cent year-on-year, driven by a 12 per cent rise in two-wheeler production and 1 per cent growth in passenger vehicles.

However, commercial vehicles may see a 13 per cent decline due to slower infrastructure development. Companies with higher exposure to two-wheelers, such as TVS and Endurance, are likely to show better results, while those focused on commercial vehicles, like Ashok Leyland, may underperform.

For the banking sector, net interest income (NII) is expected to grow by around 10.6 per cent year-on-year in Q2 FY25, with pre-provision operating profit (PPoP) increasing by 17 per cent.

NBFCs are expected to show growth despite weaker margins, with credit costs remaining high. In the microfinance sector, asset quality issues continue, with elevated slippages and declining collection efficiency. (ANI)