‘Normal monsoon, likely rate cut to support market’

livemint.com:

Edited excerpts from the interview. The earnings season has indeed been mixed, with sectors such as pharmaceuticals, healthcare, consumer durables, capital goods, and automobiles showing more than 20% Ebitda growth. However, pressure in oil & gas and cement has kept overall Ebitda growth subdued in low single digits.

For the last six months, we have seen that mid- and small-caps have been doing better than large-caps. In fact, some mid-caps are even trading at a premium to large-caps. Given this backdrop, we expect large-caps to outperform mid-caps over the medium term due to the valuation differential in their favour.

In the short to medium term, I believe the markets are likely to remain range-bound with a positive bias. This outlook is supported by factors such as normal monsoons and the expectation of an interest rate cut in the latter half of the year. Margins have shown improvement in sectors such as automobiles, capital goods, consumer durables, healthcare, and metals.

However, overall universe’s profit margins have been under pressure mainly due to the decline in margins in the oil & gas sector. In the upcoming quarters of FY25, we expect profitability to improve as the impact of elections wanes off and normal monsoons boost demand. We believe that the reported number in financials will remain under pressure as many large banks have a high loan-to-deposit ratio (LDR).

In turn, the deposit rates are inching up because of the need to reduce LDR. As interest rates are expected to decline in the second half, net interest margins (NIM) and overall profitability in the banking sector are likely to come under pressure. We believe most of it is already factored into the stock prices and the valuations of major banks are