Gold-linked lenders have enjoyed a strong run on Dalal Street, riding the relentless rally in bullion prices, but investors may now need to temper enthusiasm with caution. Independent Market Analyst Ambareesh Baliga believes that while the momentum in gold financiers such as Muthoot Finance and Manappuram Finance has been impressive, valuations and historical precedent suggest prudence is essential at this stage.
Responding to ET Now’s query on whether the current phase represents a multi-year cycle for gold and gold lending, Baliga said the sector’s performance is closely tied to the sharp rise in gold prices over the past year.
“Till date, we have seen an extremely good move as far as gold is concerned, because of which clearly the gold financing business benefits. The loan component is much, much higher than what it was possibly a year back, and that is what is reflecting in the prices of all these gold financiers,” he said.
However, he cautioned that such strong rallies have not been permanent in the past. “We should remember that at some point in time, like history has shown us, after this sort of a move both gold and silver have corrected decently well in the past, and I do not see going ahead that it could be different. But it is very difficult to call as to where the top would be,” Baliga added.
Given the stretched valuations, especially in names like Muthoot Finance, Baliga advised investors to rely more on risk management than on fresh fundamental calls. “Someone who has invested in Muthoot Finance or other gold financiers, I would say possibly keep a trailing stop loss. To take a fundamental call at this point will be difficult. It has got expensive, but looking at the momentum, it is better to keep a trailing stop loss, and the day the stop loss gets hit, just ruthlessly get out,” he said.
IT earnings may surprise, but sustainability in doubt
Turning to the information technology sector, Baliga acknowledged that recent earnings from large IT companies have delivered some positive surprises. With TCS and HCL Technologies reporting better-than-expected numbers, market sentiment around IT stocks has improved marginally.
“There could be some surprise on the upside like what we have seen for HCL Tech as well as TCS,” Baliga said, noting that HCL Tech stood out more prominently.
That said, he does not expect the momentum to sustain beyond the near term. “If you are talking of the next two quarters, I do not think we can see too much of upside as far as the overall IT space is concerned,” he said.
For investors sitting on gains, Baliga believes the recent bounce should be used strategically. “Possibly utilise this upside to lighten your positions, and you should get most of these stocks at slightly lower levels going ahead,” he advised, indicating that valuations and demand visibility may not yet justify a sustained rerating across the sector.
L&T correction offers opportunity
On the capital goods major Larsen & Toubro, trading around ₹3,900, Baliga struck a more constructive tone from a long-term perspective. He attributed the recent correction in the stock to a combination of project-related concerns and policy chatter.
“We have seen a good move in L&T, and after that we have seen this correction basically because of two reasons. One is the talk of project scrapping or rebidding where L&T was L1, so that is what is hurting the sentiment today,” he said.
He added that recent reports around allowing Chinese companies to bid for projects in India have also weighed on sentiment. Despite these near-term headwinds, Baliga remains confident about the company’s fundamentals.
“If it corrects some more from here, I think it is a good level to start buying from a long-term perspective because, whatever said and done, you see the order book for L&T, clear visibility is there, and there is no way this company can underperform. We have seen that in the past also,” he said. Baliga suggested that investors look to accumulate the stock on a further 4–5% decline.
Footwear stocks fail to excite
In contrast, Baliga expressed little interest in the footwear segment at current levels, despite broader discussions around a consumption recovery.
“Not really at this part of time,” he said. “Although we are talking of consumption, we have seen most of the footwear industry languishing. The top one is Bata, which has been languishing for too long a time. RedTape, clearly because of all this news, possibly it can move, but overall, I would avoid it.”
Key Takeaways
Baliga’s views underscore a market environment where select pockets continue to show momentum, but valuations and sustainability remain key concerns. While gold financiers have benefited enormously from the bullion rally, risk management is critical. IT may offer short-term surprises, but longer-term upside appears limited, while L&T stands out as a quality name worth accumulating on further corrections.