A part of the Street expects the bulk of the rally in FY25 to come from largecaps and a bit of an underperformance from midcaps and smallcaps after 70% gain in FY24. Would you buy that argument?
Mahantesh Sabarad: It depends on what we see in terms of earnings growth going ahead because one of the key factors for the earnings is obviously the upcoming monsoon and the focus thereof, as well as what is likely to be the outcome of the general elections. These two key events will determine the earnings path for most of the companies and therefore it depends on how you will see these events play out. If both these events play out as the market expects, we will have a continuation of the government and have a better monsoon forecast. There will be solid earnings growth to come in. We might expect a little bit of moderation in valuation, but the market momentum will not get disturbed and will not see a great fall. We will probably see a steadier growth in the market. We will not see the likes of FY24 with a 30% rally in largecap and a 60% rally in midcaps and smallcaps; we will probably see that moderated down to around 15-20%, which is good enough.
What is your take on the consumption theme? FMCG has been a stark underperformer in the year gone by and I am talking about staple consumption factors. Do you see anything that makes you believe that FY25 will be different for FMCG?
Mahantesh Sabarad: Multiple reasons can be attributed to lesser performance of FMCG companies. There has been starkly lower volume growth. I would say very tepid volume growth. The premiumisation effect is somewhere stalled and commodity prices are eating out the profits of most of these companies. Now on all these three factors as we move into the year ahead, we can expect things to be a lot better.
With a better monsoon forecast, probably we will see volumes resurging once again for the FMCG companies. Commodity prices are likely to moderate ahead and can add to the bottom line effect or margin effect of many of these FMCG companies and quite frankly, most of these FMCG companies are under-owned in terms of the overall portfolios of either the institutions or generally speaking the market.
All these factors, when they come together, should make for a better year ahead for FMCG companies because from the perspective of steady growth, most of these FMCG companies are well-managed. The only thing that they need to get back in terms of their mojo is the volume growth. If that happens, all other pieces will fall in line and the companies will start doing better. Of course, the under-ownership would mean we could see a valuation uptick.
