Lalit Kumar, Senior Fund Manager at ICICI Prudential AMC, remains positive on commodities but prefers ferrous metals over non-ferrous metals, with long steel looking more attractive after its recent correction. According to reports from CNBC TV18, Kumar believes the steel cycle is still below mid-cycle levels, with structurally higher EBITDA per tonne and lower capex intensity supporting stronger returns. He emphasizes that ferrous metals companies have structurally higher EBITDA per tonne on a mid-cycle basis compared to the previous decade (2010-2020), with their capex per tonne being low due to brownfield expansions and incremental return on capital (ROC) being high.
Beyond commodities, Kumar sees significant opportunities in textile and manufacturing exporters, supported by India's currency advantage, geopolitics, and diversification into new categories. As reported by CNBC TV18, he highlights that textile is a big sector as far as employment is concerned and can be big for earning foreign reserves, with the government taking steps to promote textile exports. The sector benefits from India signing a lot of foreign trade agreements (FTAs) that give longevity of growth for these companies. Kumar notes that garment-based companies will be better positioned with better pricing power, while manufacturers trying to diversify into new categories and do joint ventures will have improved growth outlook.
Kumar remains cautious about sectors where margins and valuations are near peaks, particularly highlighting hospitals as one of the sectors where we are a bit cautious because margins are at an all-time high. According to CNBC TV18, he explains that hospitals margins are at the peak and companies are adding capacity, indicating that over the next three years, we will see significant capacity addition that is going to happen. He advocates a selective approach to new-age companies based on their long-term moat, stating that companies without a moat will struggle at some point in time.
Kumar emphasizes the importance of being counter-cyclical in commodities, preferring to bet on corrected prices rather than overvalued assets. As reported by CNBC TV18, he notes that Q1 earnings have been very good across sectors, but will be a bit cautious in extrapolating these numbers due to inventory gains and cost increases yet to reflect in the numbers. He expects growth to taper off from Q1 numbers but emphasizes that earnings are important for markets, with focus on oil prices, geopolitics and midterm elections as catalysts. Kumar advocates for identifying sectors with good earnings growth and avoiding sectors where margins have peaked out.
