Outlook for FY25 and key learnings from FY24 | Omniscience Capital

Performance of smallcases in FY24

• We have seen significant value unlocking across our smallcases with significant outperformance compared to the respective benchmark indices. All of our core as well as specific growth vector oriented smallcases have seen upward re-rating and strong fundamental performance in the last financial year and the recommended asset-allocation to a mix of core and multiple growth vectors has done well for investors by providing lower volatility and yet capturing the growth. 

Investment Strategy followed for smallcases in FY24

• All our smallcase offerings are based on the fundamentally-driven Scientific Investing Framework which capitalizes on market mispricing and high-growth opportunities. We have been focusing on high-growth opportunities in the economy that are available at a steep discount to intrinsic value. In the last one year, a significant part of the returns in the clients’ portfolios has come from the re-rating as evident from the portfolio valuation multiples. We continue to focus on below-the-radar growth vectors to bring attractive investment opportunities in the form of multiple core and thematic smallcases.

Market Trends & Themes which took the spotlight in FY24

• Our offering on Railway infrastructure, Power, Mobility, Defence, IT, AI and Financial Services have all seen spectacular value unlocking as seen in the valuation multiples. The fundamentals have remained strong for these companies and the growth possibilities are expanding for all these sectors. Our dividend strategy is a good example that exabits the strength of our investing framework. While a novice dividend strategy would only focus on high dividend yielding stocks, Omni Super Dividend strategy captured some of the extremely undervalued names with strong balance sheets, sustainable cash flows and strong earnings growth potential, resulting in a robust investment portfolio.  

Sectors and Industries to track in FY25

• We are seeing great potential in the banking sector. The banking sector fundamentals are currently strongest in years with the capital adequacy ratios being at decadal high and the gross NPA as decadal lows. We are already witnessing double-digit growth in the bank credit. Banking sector is at an optimal growth stage with banks having large capacity to lend and private sector having large capacity to borrow with de-levered balance sheets. The valuation for both private and public sector banks are attractive and there is a good potential for re-rating that can take place on the back of further improvements in RoEs and growth rates. IT is another favourably placed sector with strong growth coming from digital transformation and Artificial Intelligence, specifically, Generative AI areas. The expected US interest rate cuts and the strong outlook for the US economy bodes well for the IT sector.

Potential shifts in sector allocation one can expect in FY25 compared to FY24

• In FY24 we have seen significant repricing in mid & smallcap space. In the coming year, we expect the focus to shift to large caps. Beyond the capitalization, we believe that the market will continue to concentrate of mispriced growth vectors such as Banking, Clean tech, Power, Infrastructure and Technology. Amrit Kaal initiatives focusing on logistics, manufacturing, sunrise-sectors and improving the broader physical and digital infrastructure in India are expected to remain at the forefront of policy framework for the government and hence, we expect the infrastructure spending and performance linked incentives to remain strong.

Various risks foreseen for the Indian markets

• Indian economy is on a strong foundation with strong GDP growth, stable inflation and interest rate outlook and strong fiscal position. FY24 has seen multiple upward revisions on the GDP growth and we expected the economy to continue to grow at nearly 8% for next few years. The gross fixed capital formation in FY24 is up more than 10% indicating significant investments for the future GDP growth. We anticipate business sentiment to improve further and the private sector capex to recover in a substantial way going forward.  

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