Daily Voice: Vikas Khemani bullish on FY25. Here are his 2 must-haves

Vikas Khemani, founder of Carnelian Asset Management & Advisors, expects FY25 to be a good year for the market. Earnings growth is fairly broad based and stable and there are no macro headwinds, says Khemani.

After elections, he expects greater flow of funds into India, which will a further boost to the market.

Khemani, who has more than 27 years of capital markets experience, continues to be overweight on technology stocks and tells Moneycontrol in an interview that engineering research and development will be the bigger theme within the IT sector. Edited excerpts:

Do you expect the strong equity rally to continue in the current financial year as well? Will Nifty touch 24,000 by year-end?

We don’t see any panic or macro headwind arising in the market. Earnings growth is fairly broad based and stable. Post elections, we can expect lot of flows coming to India, which can further drive the market from here. We believe momentum will continue for India this year as well.

Most global experts say valuations are the primary concern for India, even though fundamentals are strong. What is your take?

Fundamentally, India is well placed in terms of growth & ROE (return on equity) than other emerging countries (EMs). Valuation of any asset is an interplay of four factors  — ROE, growth, interest rates and risk premium. In each of these factors, India is far better placed than any time in the past and better than any other markets.

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If this is the case, why should people question and worry about India’s premium valuation compared to the past and other EMs . We are not making a point that there are no risks or there won’t be any volatility in the markets. There will be. Surely there are pockets of euphoria, which one should avoid, but not the markets as a whole.

Are you invested in technology stocks?

We continue to be overweight in technology stocks. We see IT as the best sector to play US interest rate cycle. FY24 will form the bottom of growth for the sector, FY25 will see revenue revival. We see ER&D as bigger theme within IT sector.

Do you think the Fed rate cut cycle will start in June? Will the RBI act in the following month? If yes, will it RBI cut rates by 100 bps in FY25?

We believe Fed rate cuts will start in the later part of CY 24. RBI Governor Shaktikanta Das remarked that the "elephant in the room – inflation", which had hit a peak of 7.8 percent in April 2022 "appeared to be returning to the forest after having gone out for a walk",  meaning interest rate will go down along with this.

Of course, it won’t be 100bps but it will be done in phased and timely manner.

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Are you adding energy and ancillary stocks?

We have bought power stocks, as there is lot of investment happening in this space. We see this as global trend. Lot of power ancillaries will also do well.

Do you still see more value in auto stocks?

We continue to remain positive on the sector. Auto has seen growth after a long period of time and also a good play on consumer demand. We see it as structural growth play.

Which are the themes that you don't want to miss in FY25?

We picked up two themes — pharma and power for FY25.

The domestic pharma market is expected to grow 10-12 percent, driven by strong growth in chronic segments and exports to also grow in double digit, led by new product launches, reducing intensity of price erosion in the USA and product shortages.

For power sector, FY25 will see strong revival of thermal capex. The government has planned 30GW of thermal capacities from the PSU sector over the next seven-eight years. Thermal market will become 5-6GW market annually versus 1-1.5GW over the last three-four years. The entire power space will get benefit – generators, transmission companies, distribution companies, transformers, core and ancillary equipment suppliers.

What is your strategy behind the launch of Carnelian Bharat Amritkaal Fund?

It is said when you zoom out and look at something over a longer time horizon, things look much different than when you are zoomed in in a narrow time frame. In these times, when most people are focused on short- term markets movement and valuations, we zoomed out and looked at what are the possibilities, probabilities as India looks to become a developed nation – Viksit Bharat over the next 23 years (referred to as Amritkaal - the period of a new beginning of greater prosperity for all).

Carnelian Bharat Amritkaal Fund is designed to leverage opportunities arising from seven mega trends that we see emerging across five sectors. India’s corporate profitability, which is currently at $150 billion, will go to $1 trillion by 2035 and $2.5 trillion by 2047. This means the Nifty can hit 1,00,000 by 2035.

As the Indian economy transitions to a developed nation – Viksit Bharat by 2047 with a GDP of $29 trillion (~8x from today), investing in India today is a once in a lifetime opportunity, like the Japanese Economic Miracle, leading to significant wealth creation during the AmritKaal period.

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