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Neeraj Chadawar on 5 themes that will impact the stock market

Neeraj ChadawarHead of Quant Strategy, Axis Titles, said: “We strongly believe that the Indian economy is well placed and continues its growth momentum and we continue to believe in double-digit returns. Given that valuations are stretched at the moment, we believe the ascending theme is the best place to identify old economy-based stocks as well as export-oriented stocks. This is why we have projected five different themes for 2024, which will have an influence on the stock market.

Let’s just talk about the theme New Year, New Horizon. The Indian economy is doing much better than other emerging markets. The market closes day after day at new highs. What is the story to watch out for in 2024 in Indian markets? Is this something we should see to keep this race going for us?
Neeraj Chadawar: We end 2023 on a positive note and with the new year, new horizon we enter 2024 on a positive note again. We continue to believe that the Indian economy will witness a period of brilliant growth and will continue to be a successful economy in the basket of emerging markets. Moreover, the overall balance sheet of Indian companies has improved significantly. All these events will have an impact on the stock market. Regardless, we strongly believe that the Indian economy is well placed and continues its growth momentum and we continue to believe in double-digit returns. Given that valuations are stretched at the moment, we believe the bottom-up theme is the best place to identify old-economy-based stocks as well as export-oriented stocks. This is why we have planned five different themes for 2024, which will impact the stock market.

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You talked about five themes. Could you name some themes? What attracts you to these five themes?
Our first theme is the theme of manufacturing. We believe that India is on the cusp of a manufacturing upcycle and based on policy continuity, the policy continuity scenario has emerged over the last month and we continue to believe that during the formation of the new government based on political continuity, the theme of investment spending will be more emphasized. Based on this manufacturing theme, we have identified four stocks for 2024. They are Pitti Engineering, Archean Chemical, Sansera Engineering and Amber Enterprises.

Our second theme is PSU banks. We believe that PSU banks are in a positive situation and will continue their growth momentum in 2024 as well and under the PSU banking theme, we like SBI. SBI is the right place for growth leverage, the asset quality trend has improved significantly and at the same time the bank is forecasting good return ratios in the coming years with ROA, ROE of 1% and 16 %, the stock is trading at a very attractive valuation. There is enormous headroom available for the valuation to continue rising. So we have set a target of Rs 800 for SBI.

Along with this, we continue to believe in the NBFC space and as part of NBFC, we recommend Manappuram Finance. Currently, the gold financing sector is a very attractive space. As gold prices rise, end users of gold financing are also doing well. Much of the growth in assets under management is visible in gold financing. Along with this, in Manappuram, the company is also de-risking its cyclical gold-related businesses in favor of non-gold financing activities and we believe this year the growth in assets under management will be at two numbers.

Considering the growth trajectory for the next couple of years, the stock is trading at a very attractive valuation, which is why we have placed it in our theme as an NBFC gold finance play with a target price of 205 over the next year.

Another theme is that of consumption which you also talk about. I believe you chose Westlife Foodworld. Would you lean towards something more luxurious or something more like Titan?
Neeraj Chadawar: Yes, consumer demand has been weak over the last two quarters and we haven’t seen any recovery signals, but demand is expected to improve in 2024. In this space, we like QSR because it is the fastest growing space in which Westlife Food is located. The company has set a target of opening nearly 600 stores by FY27. Currently, they have 370 stores, majority of which are in Tier I and metro cities.

Along with this, they are leading the premiumization program by launching their fried chicken and McCafe by increasing their average value per ticket size from 200 to 250 to more than this level. We believe that at the moment the valuations are very attractive and over the next year a lot of money can be made with Westlife Food. We have set the target of Rs 1,000 for Westlife Food and we believe that in 2024 the demand will pick up compared to what we saw with subdued demand in 2023.

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