Metal stocks set for strong year as domestic demand strengthens: Dharmesh Kant

The latest US rate cut, a possible change in Fed leadership and new stimulus measures have forced investors to reassess their expectations in key sectors. Dharmesh Kant, Cholamandalam Securities in an interview with ET Now highlighted how these developments are playing out in IT, aviation and metals – three spaces that are moving in very different directions.

Kant noted that despite nearly 175 basis points of US rate cuts over the past two years, discretionary spending in the IT sector has not improved. He noted that companies have long argued that rate cuts would increase tech spending, but “nothing has changed dramatically for IT.” He highlighted that revenue growth remains in the mid-single digits and strong midcap names like Coforge and Persistent have also turned cautious, with Coforge holding back its guidance. According to him, the sector is going through an extended phase of disruption due to rapid AI adoption. He expects IT majors like Infosys and TCS to see “5-6% trading upside” aided by currency tailwinds but believes that structurally “nothing changes for IT.” For investors, he sees better opportunities in midcap IT companies, which he says are “better positioned as they are on the services side rather than products.”

Turning to aviation, Kant warned that more challenges lie ahead for Indigo. He pointed out that the airline is dealing with weak margins, currency pressures and uncertainties surrounding its large aircraft acquisition plan. “The near-term pain is still ahead,” he said, suggesting that both Q3 and Q4 could be difficult. He stressed that lack of pilots and regulatory approvals could slow expansion, adding that growth expectations for FY27 and FY28 may need to be cut by 15-20%. According to him, the stock may still see a trading bounce, but advised against it until clear visibility emerges.

However, the metals sector looks more promising. Kant called the recent consolidation in metal stocks healthy and not a sign of weakness. He said there was “no major difficulty” except for Tata Steel, which is a critical case because of its European exposure and debt burden. He noted that domestic restructuring efforts at the company could be EPS-accretive by FY28-29. He sees strong potential in Hindustan Zinc, Hindalco, JSW Steel and Jindal Steel & Power and points out that the US rate cut should support Hindalco’s novelties operations. He warned that global markets are vulnerable to Chinese dumping but added that “domestic plays look good.” On Vedanta, he acknowledged that the stock is undervalued, but added that its promoters are making the situation “difficult”.

Overall, Kant’s assessment suggests a fragmented market landscape. IT continues to grapple with structural disruption despite frequent rate cuts. Aviation is facing a challenging few quarters amid operational and regulatory pressures. Metals, on the other hand, are positioned for a formative year ahead, supported by domestic demand and improving balance sheets.