Cement, Metals and Consumption: Pankaj Tibrewal’s top sectoral bets for FY26

"Policy relaxations in terms of risk weightages, ignored by the markets, and the third important point is the policy rate cut action after five years ignored by the markets," says Pankaj Tibrewal, IKIGAI Asset Managers.

Well, could have been better if markets were better.
Pankaj Tibrewal: These are all cycles. You have seen it all across. So, we should not be too worried and on the contrary, after a long time, we have started to turn a bit constructive on markets now.

Three-four points which probably I would like to draw your attention to, over the last 18 months the slowdown which we saw and especially from March 24th was a combination of both monetary and fiscal tightening which we have been seeing and both at the margin have started to and at least in my career over the last many-many years, except GFC and COVID, I have not seen a policy pivot as strong as what RBI has done in the last 45 days and that is getting clearly ignored by the markets today.

RBI has already announced a liquidity injection to the tune of 6 lakh crores, very well ignored by the markets. Policy relaxations in terms of risk weightages, ignored by the markets, and the third important point is the policy rate cut action after five years ignored by the markets.

So, the RBI policy pivot is a very important and substantial move from a macroeconomic perspective and over the next few quarters we will start seeing the impact at the ground level. The second is the government capex.

We were minus 12%, if you remember, till November. December, January has been very strong months and so is Feb looking to be. And from that perspective when we speak to the core industries at the ground level, whether it be cement, whether it be the long product steel, wires and cables, batteries, all are talking about a better fourth quarter and better economic environment and demand environment.

The third important part is the fiscal consolidation. Do not forget we are the only country in the world from a peak of 9% on fiscal, we have come down to 4.8 and next year is expected to be 4.4. And from there on, the fiscal consolidation will only be 20 to 25 basis points compared to the last five years we have seen the maximum fiscal consolidation.

So, if you combine these three things together, what it translates into corporate earnings is that this year will be a softer earnings growth environment FY25 and the first half we saw about 3% to 4% earnings growth on headline basis on the top 500 companies.

Third quarter was better than the first half in terms of reported number being 8.5-9% and our sense is fourth quarter will be better than the third quarter and do not forget the next two quarters in FY26 the first and the second quarter optically will look very good because the base is very low.

So, my sense is that economic activity has started to pick on the ground. The liquidity, which was very-very tight for almost 12 months, which we have been talking about has started to ease and when we speak to dealer, distributor, ground people, we have started to get the feedback that liquidity has started to improve and that is something which will show a full throttle probably a quarter or two quarters down the line.

So, from a fundamental perspective, things have started to get better than what it was for the last 6-12 months and markets will take cognisance of that as we move ahead, so that is the first part on fundamentals. The second part is sentiment. If you speak to anybody on the ground today, 9 of the 10 people are extremely pessimist because whenever they come in the morning and see the screen, it is all red. So, the stock prices are driving the narrative and our sense is that it is a great time for managers to pick up right companies, right stocks because earlier in the last two years, you did not get the time to research.

Now will be the time to go deep into the companies, pick up your winners, and please do not get me wrong that it will not be the same way the markets saw in the last three years.

It will be a range bond market. It will consolidate itself and it will be a stock pickers market in the next 12 to 18 months. So, sentiments are bad, but that is a great time when you pick up your winners over the next two, three, five years. And the third is the flow.

Everybody is asking, FIIs kab wapis aayege, when will be the ghar wapsi of FIIs and domestic flows have started to slow down and that will have a bearing. My sense is that with the correction in the US markets, it is a great news for emerging markets, including India, and sooner or later FIIs flow should resume is my guess.

CY21 till now, FIIs have withdrawn $6.5 billion and the entire money of $2 trillion has flown to US markets over the last many years. With this correction in US market, capital allocation and capital flows will rotate. So, I am not too negative on the FII flows resuming back sometime during the year.

And there you have said you like capex and you like wire companies, you like cement. So, you like cement, you have been liking cement for a while now. So, let us look at data where I like to contradict you. Let me contradict you on the tariff part, which is that we do not know which way things would move and I am assuming something will move here or there. So, this alignment, which will happen because of this entire tariff change, how exactly are markets prepared for it?
Pankaj Tibrewal: So, globally, there will be a lot of noise on tariff and you are already seeing that. But in that environment, I am taking a slightly contrarian view that India probably over the next two-three years will be the biggest beneficiary of this geopolitical issues which are going on. And do not forget that finally, Mr Trump is a great negotiator rather than being a great politician.

And when I say that, look at what happened after post Mr Modi’s meeting. Suddenly you saw Tesla having LinkedIn post for recruitments. Suddenly, in the last two days, you saw Starlink having a JV with Airtel as well as Jio and these are all indications towards that give us access to your markets, we should be okay.

And our sense is that when we even look at the reciprocal tariffs and what tariffs have been imposed on China, Mexico, Canada, and other places, we should be relatively much-much better.

People are concerned about pharma, but do not forget that 60% of the generic drugs supplied in US is from Indian pharma companies. And if you raise the tariff, already these companies are not making too much of money, they are making wafer thin margins, many will just move out of those some of the molecules and there will be a huge shortage which will lead to huge price increase.

So, I do not think government will take that chance in US, at least on the healthcare side. And rest of the segments, gems and jewellery, carpets, textile, there could be some reciprocal tariffs, but from a medium to long-term if you look at and hoping that relationship between China and US does not improve, you will be surprised that a lot of work by the US centric companies will flow to India rather than going to any part of the world.

So, in this noise, I will be extremely optimist on looking at companies which have moats around them and they can be a great substitute for many of the Chinese and other companies based on either Mexico or Canada and that kind of a work and scalability can come back to India in our view.

So, I do not think India will be as much impacted as the noise is made out to be, but over a period of time, there could be many opportunities for the manufacturing set of companies in India. Just if you look at the horizon for the next two-three years and take objective call, that if it attacks both the largest markets in the world, which is China and India, where will US sell its defence equipment, where will it sell its energy, and where will it get markets for US companies?
So, think about it from an objective angle and you will think that India probably could be well-placed. Right now, the noise is against us, against the markets, so people are getting carried away, but over a period of time you will come to figure it out.

Since it is going to be quite difficult the next one year, too many moving parts at play, what should investors be doing when it comes to their sectoral biases?
Pankaj Tibrewal: So, one, what we have been saying that do not get carried away by narratives. Over the last two-three years, money making was so-so easy that everybody had left their core work and just focused on stock markets.
I think that era probably may not come back in a hurry. And hence, I believe that asset allocation and discipline will make a difference of whether you make money over the next three years or you do not make money.

And from an asset allocation, I mean that out of Rs 100, you need to have Rs 40-50 depending on your risk appetite on flexicap, largecap, and the rest Rs 50 between thematic, small, mid, and other parts and part also in gold.

So, asset allocation, discipline, patience will be the key force over the next couple of years which will decide whether investors make money, that is first. Second, on the sectoral preferences, after every cycle we see what made you money in the previous cycle.

Generally, the leaders are very different. And our sense is that whatever policy action has been taken on, private sector banks and NBFCs look to be in a very decent position and valuations have corrected over the last three-four years and hence they seem to be in a right position. The second sector we are liking is speciality chemicals.

Already in this year, calendar year, in this correction, we are seeing among the top 500 gainers, a few of the name emerging from chemical sector after a long time and the underlying is starting to improve and the agri destocking which was happening is behind us, so that is the second sector. Cement started to see consolidation, price increase, and this quarter could be much better than the third quarter for most of the north-based cement players, so that is the third sector. The fourth is a contrast sector, which is metals.

Metals is at a point of 2001 to 2003 in terms of profit contribution to overall corporate India profitability and those are mean-reverting trends. Today, you cannot say anything positive about metals, but I follow that profit pool contribution trend and that is showing that metals probably it has a very interesting juncture and in this correction also in the last two months, generally metals are very high beta and this time their behaviour has been quite different, so that is showing that some positioning is happening on the metals and mining sector.

And the last but not the least on the consumption basket. Many stocks on the consumer discretionary part are three years, four years zero return, valuations have time corrected and there have been few of the reasons why they have not done well and I believe that next couple of years would be seeing consumption resuming back.

The kind of spend we are seeing at the ground level in terms of welfare schemes, in terms of tax cuts and all, will start to show its impact in FY26 second half. So, consumption is another area where we are positive upon. So, these are a few of the sectoral biases we have in our portfolio as you move in FY26.