NewsStocksGold Financiers Rally on Bullion Surge But Valuations Signal Caution, Says Ambareesh BaligaGold Financiers Rally on Bullion Surge But Valuations Signal Caution, Says Ambareesh Baliga
Market analyst Ambareesh Baliga warns that while gold financing companies like Muthoot Finance and Manappuram Finance have benefited from the bullion rally, stretched valuations require caution and trailing stop-loss strategies. He sees limited sustained upside in IT stocks despite recent earnings surprises, views L&T's correction as a buying opportunity on further weakness, and remains negative on footwear stocks despite consumption recovery talks.
*this image is generated using AI for illustrative purposes only.
Gold financing companies have delivered strong returns on Dalal Street, benefiting from the sustained rally in bullion prices, but market analyst Ambareesh Baliga suggests investors should approach the sector with increased caution due to stretched valuations.
Gold Financiers Benefit from Bullion Rally
Speaking to ET Now, independent market analyst Ambareesh Baliga acknowledged the impressive momentum in gold financiers such as Muthoot Finance and Manappuram Finance. The sector's performance has been 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," Baliga explained.
Historical Patterns Suggest Caution
Despite the strong performance, Baliga warned that such rallies have not been permanent historically. He emphasized that gold and silver have typically corrected after significant upward moves, though timing the peak remains challenging.
"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," he noted.
Given the stretched valuations, particularly in companies like Muthoot Finance, Baliga recommended a risk management approach over fresh fundamental analysis:
| Strategy Component | Recommendation |
|---|---|
| Risk Management | Use trailing stop-loss |
| Investment Approach | Avoid fresh fundamental calls |
| Exit Strategy | Ruthlessly exit when stop-loss hits |
| Valuation Assessment | Currently expensive |
IT Sector Shows Mixed Signals
Regarding the information technology sector, Baliga acknowledged recent positive surprises in earnings from major IT companies, including TCS and HCL Technologies. HCL Tech particularly stood out with better-than-expected results.
"There could be some surprise on the upside like what we have seen for HCL Tech as well as TCS," Baliga observed, noting improved market sentiment around IT stocks.
However, he expressed skepticism about sustained momentum 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 holding IT stocks, Baliga suggested using the recent bounce strategically: "Possibly utilise this upside to lighten your positions, and you should get most of these stocks at slightly lower levels going ahead."
L&T Correction Creates Opportunity
Baliga struck a more constructive tone regarding Larsen & Toubro, currently trading around ₹3,900.00. He attributed the recent correction to project-related concerns and policy discussions affecting sentiment.
The analyst identified two key factors behind L&T's recent decline:
- Project scrapping or rebidding concerns where L&T was the lowest bidder (L1)
- Reports about allowing Chinese companies to bid for Indian projects
Despite 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."
He suggested accumulating the stock on a further 4.00-5.00% decline, citing the company's strong order book and historical performance.
Footwear Sector Remains Unattractive
Baliga expressed little interest in footwear stocks despite broader consumption recovery discussions. He noted that most companies in the footwear industry, including market leader Bata, have been underperforming for an extended period.
"Not really at this part of time. 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," he said, recommending investors avoid the sector at current levels.
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