India Strategy Weekly IdeaMetrics : EMP: Shifting focus to growth by Emkay Global Financial Services Ltd
Crude prices have corrected 20% MTD as Middle East tensions have subsided. We use the recent market move to exit the peace theme and reshuffle the Emkay model portfolio to shift from tactical positions based on crude correction to longer-term growth opportunities.
Crude price correction overshooting
Weak energy prices could be a significant incremental tailwind for Indian equities. The crude price correction has overshot our projected $75-80/bbl range and Brent collapsed to $72/bbl on 25-Jun. If it sustains at this level for the rest of FY27, the current account deficit would improve to 1.4% of GDP (vs our base case assumption of 2.3%). Moreover, it could also deliver a 20% benefit on the fiscal deficit, if the government restores excise duties to pre-war levels. The macro benefits should translate into better growth, and the risk of consensus downgrades to FY27 Nifty EPS (Rs1237, +15% yoy) should diminish significantly.
EMP changes – exits
We think it is time to exit pure-play peace dividend positions and look toward more medium-term growth stories. We rebalance our portfolio accordingly and make four exits/trims:
HPCL – the stock has rallied 19% in 3M and is now trading at 1.32x PBV, close to 5Y LTA. There may be a further leg to the rally if crude drops further, but we find little valuation comfort and remain concerned about long-term growth and profitability. We would rather reposition into stronger long-term growth stories and exit our position.
UTCEM – the stock remains a laggard and falling energy prices have not had the impact we anticipated. The stock remains expensive at 20.7x FY27E EV/EBITDA and further performance hinges on nationwide price hikes. We believe competitive intensity in the sector shows no signs of abating and switch to better long-term growth ideas.
Lenskart – since its listing in October, the stock has run up sharply, rallying over 26%. Valuations are elevated at 7.9x FY27E P/S, with little comfort left and growth largely priced in; we exit our position.
EMP changes – additions
Bharat Forge – multiple growth levers are converging across domestic, export, and industrial businesses. Defense execution is starting to come through, backed by a ~Rs110bn defense order book and management guidance of 50% yoy growth in the defense business in FY27. We expect this momentum to continue over the next 2-3 quarters. Valuations are elevated at a PER of 58.2 FY27E but strong earnings momentum should support these rich multiples.
Arvind – textiles are well placed to benefit from sector tailwinds, including FTAs (with the EU, UK, Australia, etc), a favorable tariff environment that gives India a 7–8% cost edge over China in the US, and policy support from PLI, PM MITRA parks, and the MMF push. Backed by a strong balance sheet, a growing domestic apparel market and ~22% exposure to technical textiles, the company offers an attractive risk-reward at reasonable valuations. The stock trades at 24x FY27E PER, with FY27 EPS expected to grow 38.2% yoy.
Page Industries – growth is reviving, with Q4 revenue up 14.1% (vs ~4% in 9M), led by 10.8% volume growth and supported by management initiatives, new products, and premiumization. Distribution growth remains healthy across MBOs and EBOs. The stock appears expensive, but ~70% RoIC and mid-teen long-term growth potential support the investment case.
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