Amar Ambani says India looks better than China; here’s what to buy, sell and expect from markets

Despite the correction in the domestic equity markets in August, market watcher Amar Ambani, Group President and Head - Institutional Equities at YES Securities (India), believes that the benchmark NSE Nifty50 may touch 21,000 by the end of this calendar year. The 50-share index traded 0.38 per cent down at 19,291 in early trade on August 18. In an interaction with Business Today, he further says India’s relative strength against China will improve given our stable regulation and policy, more transparency, better stock market structure and stable working population. 

Factors to watch 

At the same time, he thinks that if global inflation stays elevated for a long time, geopolitical tensions get worse and Indian consumption falters, the weak rural economy and mounting household debt could weigh on sentiment. 

On the other hand, Ambani added that rural consumption resurgence on the back of better harvest and sustained rise in credit, agri and non-agri wages and MSP will take the market higher from here onwards. He further said that India Inc earnings also get a much needed booster dose from falling input prices and operating leverage, leading to margin expansion. Private capex also shows signs of broad-based pick up, calling for more domestic inputs rather than imports. 

Global money 

He also expects healthy inflows by foreign portfolio investors into Indian equities on the back of steady bond yields and a stable rupee. “In an increasingly uncertain world, India clearly stands out; it is way more attractive than China, where most recent data reveal deflationary trends. China’s backlash on the global investor community, and their consequent exodus 15-18 months ago, are still fresh in memory. Investors will hence look for alternate options like the Indian market,” Ambani said. 

After an outflow of Rs 1.21 lakh crore in 2022, foreign portfolio investors have poured more than Rs 1.32 lakh crore on a year-to-date basis till August 17, 2023. 

Sectors to bet on 

Ambani is bullish on real estate, building material and financial sectors. Sharing his views on the real estate sector, Ambani said that housing demand is very strong even at elevated interest levels. Demand is outpacing new launches and triggering fast inventory correction. Excluding the high-end dead inventory, which is stuck for various legacy reasons, the saleable residential stock is at a decadal low of 12 months. 

“Real estate is witnessing high consolidation with organised builders making big market share gains and commanding premium pricing, a collective outcome of conducive factors like RERA, lack of demand for projects of unorganised developers, and funding challenges of marginal developers. Balance sheets are also much leaner for the companies we track,” he said. 

He further said that buoyant housing demand and the government’s infra push will continue to offer huge opportunities to players in the building material space. 

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“I am overweight on companies involved in cables and wires, plastic pipes, home improvement and related others. We’ve seen strong results from cables and wires players in Q1FY24. Plastic pipe companies have a bright future riding on housing, infra, irrigation as well as plumbing demand. Home improvement segments like sanitaryware, plywood and tiles will see both new demand as well as replacement orders,” the market expert said. 

Commenting on the banking sector, Ambani added that bank balance sheets are healthy and recapitalised. After coming out of a decadal bad asset cycle, that was stress-tested after Covid hit, Indian banks now have adequate provisioning and stand to gain from any recoveries. 

Move cautiously 

Ambani is cautious on sectors like FMCG, pharmaceutical and asset management companies. “Looking at the macro data, it seems like demand for staples would encounter a few headwinds. Besides the bigger questions around overall consumption momentum, even a break-down of factors reveal worrying trends. Within the top quartile of urban affluent, where savings is high, demand will be more for discretionary goods rather than staples. Within rural segments, FMCG sales were up only 2.2 per cent on a year on year basis in May 2023. Given depleted savings and drop in rural incomes, there has been some downtrading of products. Given these headwinds, I don’t see meaningful headroom for stock prices of FMCG companies at these elevated price multiples,” he said. 

On the pharmaceutical sector, Ambani said the US-facing businesses continue to endure unrelenting price erosion. “Buyer consolidation is hurting them, and we’ve also seen the emergence of many suppliers in the US market. US FDA inspections haven’t picked up pace drastically and many key Indian names aren’t getting material approvals. Therefore, offsetting the fall in base business will be a formidable challenge. Companies are increasingly diversifying outside of the US, a trend which will clearly help in the future. India-facing businesses are better placed in comparison, although the competitive intensity has risen in the domestic market as well,” he said adding yield compression of asset management will continue due to hyper competition, accelerated replacement of old assets and rise in passive assets. 

“Any further regulatory action on fee structure could lead to further capping of yields. There has been some relief rally in stocks recently, but I view this space as a sell on rise,” Ambani said. 

Market outlook 

On asking where he sees the market in the medium-to-long term, Ambani said that the margin of safety for Indian equities looks high. When you have deleveraged corporate India balance sheets, Indian banks well capitalised and no bubble in property, the foundation is discernibly strong. Long term valuations aren’t stretched either, especially with clear scope for earnings to rise consistently for 4-5 years. Though India commands a premium to peers, it has a much stronger growth and ROE profile. 

“India is the only major country in the world where total debt as a percentage of GDP has reduced since 2008, unlike global debt which is up by 40 percentage points, on an average,” he said. 

Ambani further said that India’s self-sustaining consumption story, government is ongoing infra boost and expected pick up in private capex from the PLI schemes and China+1 play out are among the key long term positives. 

“When FII inflows come in strongly (like they did back in 2006) to complement the ongoing domestic liquidity flow into financial assets, we will definitely witness an euphoric rise in Indian equities,” the market expert said. 

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