1) Banking and Finance
The banking industry continues to present attractive value opportunities for investors, particularly among mid-sized private banks. These institutions have been experiencing significant growth in their loan books, with many reporting an annual increase of 15% to 20%. In fact, a select number of banks are even surpassing the 20% mark, indicating a robust demand for credit. Alongside loan growth, banks have been improving their asset quality, with non-performing assets decreasing, suggesting a reduced risk of bad loans on their books.
Deposits have been rising rapidly as well, adding another layer of financial stability. Despite these positive fundamentals, many banks—both large universal banks and small financing banks and nonbanking financial companies (NBFCs)—are still trading at relatively low valuation multiples. Price-to book (P/B) and price-to-earnings (P/E) ratios remain in the single digits, creating potential value plays for investors looking to capitalize on the sector’s ongoing growth without overpaying.
However, there are some warning signs in the microfinance sector. In certain regions, early indications of a slowdown have begun to emerge, largely due to external factors. Election-related uncertainty and the impact of heat waves on agricultural and rural sectors could lead to rising credit stress, potentially affecting the ability of borrowers in those areas to service their loans.
2) Infrastructure Sector
Infrastructure companies, particularly those with exposure to roads, highways, tunnels, and real estate, are positioned for strong performance in the near future. This sector presents a compelling opportunity for investors, offering decent valuation comfort alongside the potential for 15% to 20% revenue and profit growth. Many companies operating in this space are backed by significant order books, which extend up to 3-4 years. These robust order pipelines provide strong visibility for future revenue streams, giving these firms the ability to secure stable income in the coming years.
In addition to the healthy order books, many infrastructure companies have strengthened their balance sheets by strategically selling off non-core HAM assets and paying down debt. This has resulted in stronger financial positions, allowing these firms to reinvest in growth and pursue new projects without the burden of excessive leverage.
Also, one such growth opportunity lies in capex within the water industry. Companies involved in water-related infrastructure, particularly those focusing on wastewater treatment and desalination plants, are witnessing a surge in their order books.
Overall, with a combination of solid order books, improved financial strength, and support from government policies, infrastructure companies are well-positioned to capitalize on growth opportunities in the years ahead.
3) Oil and gas sector
The oil and gas sector continues to exhibit volatility, primarily due to fluctuations in crude oil prices. However, within this sector, companies involved in upstream exploration and drilling present a potential investment opportunity. Despite the price volatility, these companies benefit from certain favourable conditions, such as stable margins and a manageable cost environment, particularly with drilling and oil rig rates remaining at comfortable levels.
A significant driver of future growth in this sector is the large-scale capex that is set to flow in, as PSUs and the government announce new projects and orders. The government’s proactive stance on energy security and infrastructure development ensures that a substantial amount of resources will be allocated to the oil and gas sector, particularly for exploration and production activities.
The combination of strong government support, stable operating margins, and rising demand for oil creates a more favourable outlook for upstream oil companies, even amid broader sectoral volatility.
4) Realty
The real estate sector is currently experiencing a significant boom, driven by several key factors such as rising incomes, an increasing number of households, and continued urban migration. This upward trend is particularly pronounced in the residential segment, where growth has outpaced the commercial real estate market. As more individuals and families seek homeownership, especially in urban centers, the demand for residential properties continues to rise at an accelerated pace.
Certain markets, such as the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR), have witnessed a tremendous surge in demand, particularly for luxury residential projects. High-end premium projects are selling at a rapid rate, with some projects worth thousands of crores being sold out within a single day of their launch. This highlights the strong appetite for premium housing, fueled by the growing affluence of urban populations and the desire for lifestyle upgrades.
Beyond the immediate growth in sales, many real estate companies are also well-positioned for long-term success due to their substantial land banks. These land reserves provide developers with the flexibility and resources to undertake large-scale projects in the coming years, offering significant growth potential over the next three to five years.
Investors with a long-term perspective may find opportunities in the real estate sector, particularly in companies with a strong presence in high-demand markets and solid land reserves.
The author Diwakar Rana is Senior Research Analyst at Prudent Equity. Views are own
