Markets to stay rangebound near-term; big upside likely in H2: Manish Sonthalia

Economic Times

19-05-2025

ETMarkets.com
So, wherever there is valuation comfort and most of these names are available at let us say one-time price to book and a decent growth going forward and if you have let us say the bulk of the provisioning or most of the pain getting priced in, then again this is one space which looks quite interesting.
"What is supporting the markets, firstly, the markets are very-very light. The retail participation is very anaemic so to speak. You have institutional buying which has come through both on the DII and the FII front. The earning season, Q4 has primarily been better than estimates both on the largecap side as well as the mid and the smallcap side," says Manish Sonthalia, Emkay Investment Managers.
I remember the last time we connected on air, you were quite bullish on the markets and you were actually looking for some good opportunities. But now that Nifty has surpassed that level of 25,000, the broader markets are holding up well, tell us how are you looking at the markets right now and how much more headroom do you believe is there for the index to move up if at all?
Manish Sonthalia: The big move in the markets is likely to come in the second half of the year. For the next month, month-and-a-half you broadly believe that the markets would be trading within a band of 24 to 26, in a range till at about the point in time when you have clarity on the tariffs, that would broadly be the construct as of now.
What is supporting the markets, firstly, the markets are very-very light. The retail participation is very anaemic so to speak. You have institutional buying which has come through both on the DII and the FII front. The earning season, Q4 has primarily been better than estimates both on the largecap side as well as the mid and the smallcap side. There was a lot of apprehension that there is going to be degrowth in the mid and smallcap space, the quarter gone by, but I am afraid that that has not come true and the earnings for the mid and smallcaps have come in better than estimates, that is the main reason why you are seeing broadly buying in the broader markets per se and the flows on the monthly SIPs, etc, have pretty been decent. So, all in all, fundamentals will need to keep just getting justified in Q1 and Q2. Of course, we are looking at rate cuts and so on and so forth but broadly markets on an overall basis rangebound in a 10% band between 24 and 26.
Like you said this earnings is one that is actually ruling the sentiment when you talk about the markets in next one to two quarters, we need to see that momentum actually sustain when you talk about the earnings. But are there any select pockets right now that are looking very attractive to you given the fact that yes, we did see the correction, but post that we have seen a very sharp rally, a stellar one at that when you talk about the markets? Are there any pockets right now that are still actually emitting that value that you can go ahead and look to invest in because I am sure a lot of FOMO effect has already kicked in.
Manish Sonthalia: So, when the markets were at 22,000, it as a space was looking very-very well valued or very decently valued, very benign in terms of valuation given that now you have some sort of a clarity coming out of the major issues on tariffs with China and the chances of a US recession has come down from around 75% to something like a 40% probability of a recession. So, at the margin it would be outperforming in the last two-three months, that is one. Secondly, Operation Sindoor has given a lot of fillip to the defence names. I would primarily be going on where this additional 40,000 crores worth of orders are likely to come through. This is going to be broadly in the area of artillery, guns, missile programmes where electronics, etc, would be a part. So, these would be some of the areas which at the margin look pretty decent. Staples, we need to watch out for the second half of the year numbers when this whole consumption space looks good. BFSI, particularly insurance, health insurance, life insurance, of course, nothing much to read into the monthly life insurance numbers are very-very low, but on a valuation front from the next one- to two-year point of view again, this is one space looks good. Pharma has not got dented much, again it looks a good story for the next one to two years, particularly the CDMO space and that is where the entire focus would be currently according to us.
Last time we interacted with you, you believe that the entire banking and financial space looked like it had more value to offer. Given the kind of numbers we have seen in quarter four, it has been a good quarter four coming in for banking and financials. Over the year as well, on year-to- date basis these are the top two sectors that have been gaining. Now, do you believe that there is still some value in this sector? In terms of the valuations, do you believe they are justified or do you believe that there is some more run-up left over here?
Manish Sonthalia: So, ever since the second quarter of FY25 when the MFI issue came to light, of course, it was very clear that the next two to three quarters there is going to be elevated provisions, particularly in the MFI space and the retail space, that is getting manifested in terms of provisions that you are looking forward to in the midcap banking names, we got to watch out how this whole provisioning plays out. But the largecap names both in the public and private sector space are better poised at this given juncture. But at the same time, I would believe that there is definitely value emerging even in the MFI space because a lot of provisioning has already happened and particularly the stocks have also priced in most of the negative. So, wherever there is valuation comfort and most of these names are available at let us say one-time price to book and a decent growth going forward and if you have let us say the bulk of the provisioning or most of the pain getting priced in, then again this is one space which looks quite interesting.