Avenue Supermarts overvalued for long-term investment; Chola Securities bullish on commodities

Dharmesh Kant, Head of Research at Chola Securities, has outlined his investment views on Avenue Supermarts, Lemon Tree Hotels, and the commodity sector, highlighting where investors should exercise caution and where opportunities may emerge.

Avenue Supermarts: Short-term Gains, Long-term Concerns

Kant expressed a cautious stance on Avenue Supermarts, citing valuation concerns that make it unsuitable for long-term fresh investment. While acknowledging potential for limited short-term gains, he warned that the risk-reward equation is unfavorable at current levels.

"With this kind of valuation and growth, it is hard to sustain," Kant explained, emphasizing that the stock's trading multiples appear stretched relative to its growth prospects.

Lemon Tree Hotels: Trading Opportunity Amid Sector Optimism

Regarding Lemon Tree Hotels, Kant suggested treating it as a short-term trading opportunity while awaiting greater valuation clarity. He noted that investors will have the option to choose between the asset-light services business or the asset-owning hotel business once more information becomes available.

Kant maintained a positive structural view on the hotel sector, expecting strong performance over the next three to five years. The broader tourism and travel sector fundamentals remain supportive, and Indian hotel stocks have been part of Chola Securities' portfolio recommendations.

Commodities: Structural Theme for 2026

Kant expressed strong conviction in commodities as a structural investment theme, supported by favorable macroeconomic conditions. He cited a stable dollar index and expectations of global interest rate cuts as key drivers for commodity producers in 2026.

For steel specifically, Kant highlighted JSW Steel as a preferred pick, noting that safeguard duties provide protection to domestic producers. "Structurally, plenty of upside is still left," he said, while cautioning investors to prepare for short-term volatility.

Market Outlook and Investment Strategy

Kant's recommendations reflect a selective approach to current market conditions, emphasizing the importance of valuation discipline in stock selection. His bullish stance on commodities contrasts with caution on high-valuation consumer stocks, suggesting a preference for cyclical themes over expensive growth stories.

The analyst's views indicate that while certain sectors like hotels and commodities offer structural opportunities, investors should remain selective and avoid overpaying for growth, particularly in the retail sector where Avenue Supermarts operates.