Sandip Sabharwal sees value in infra, auto stks; cautious on defence stks

"We have reports that mutual funds cash position also has reached like multi-year highs, like mutual fund equity funds are now holding more than nearly 7-8% in cash which is a huge amount given the size of that corpus and they have not deployed during the entire correction," says Sandip Sabharwal, asksandipsabharwal.com.

You are not surprised by the move yesterday, the fact that we made it back to 25,000 and this morning once again it looks like it is going to be a dash to that 25,200 print.
Sandip Sabharwal: So, it is a climb of wall of worry which always happens in the markets as most people get very negative on the markets. And the problem with most forecasters is that they look at the past to forecast the future, whereas the future might be very different from what has happened in the immediate six months.

So, the thesis like I have reiterated several times always was that with reducing global tensions, lower inflation, lower interest rates, increased government spending, and finally a pick-up in consumption because of all of this, the Indian markets will do reasonably well this year and that thesis is playing out.

Now, also, we have reports that mutual funds cash position also has reached like multi-year highs, like mutual fund equity funds are now holding more than nearly 7-8% in cash which is a huge amount given the size of that corpus and they have not deployed during the entire correction. So, at some stage that provides cushion to the markets also.


What is next now, I mean there is no longer a wall of worry, there is only hope, hope, and hope and hope. Whatever could go wrong has gone wrong and everything has got fixed from tariff to inflation to flows to economy to now what is happening in terms of the macro. The only worry now is valuations.
Sandip Sabharwal: Yes, so valuations are not cheap, especially in wherever the sectors get fancied. So, if you look at, like most of the defence stocks they have already reached levels where they started to fall from, like many of them have not but still at those valuation they were at 100 times.

So, now, the bounce back has happened. So, although the story has become stronger, but people need to wait for the right kind of levels to buy.

Where the value still exists and where we could still see performance coming in is many of the infrastructure, construction companies, some capital good companies, autos, some NBFCs, the banks will continue to do well.
So, there are opportunities even within the larger-cap universe. Reliance will continue to outperform.

What to do, what not to do in this market, I mean the sectoral churn is clearly on, which is that we have seen first banks come back, then we have seen defence, then we have seen metal. So, it is like this passing the parcel which is on. So, before the music stops, where should we pass the next parcel now?
Sandip Sabharwal: You are saying before the music stops, I am saying party abhi shuru hui hai. So, next, like I said the sectors which still offer opportunities. I already spelled out when you asked the last question. So, I would think that what people should not do is to chase performance too much.

So, just because defence stocks have gone up 50%, everyone is shouting that some stock has reached a new high, etc, do not chase them at that point of time. Wait for better opportunities to come in because obviously like you also said markets will not go up in a straight line. There will be correction.

There will be some global event. There will be some news flow because of which some correction could happen, wait for those opportunities and then buy. What I will not recommend is that holding excessive amount of cash because we had a substantial correction both in terms of value and time starting last September.

So, now, if some people are expecting that markets will again have that kind of correction, that is not going to happen in my view.


You still like Reliance, you still like L&T, you still like Bajaj, you still like KEC.
Sandip Sabharwal: Yes, all these stocks should do well. I would think that because for many of them the participation has just started. For many of them, the move is not complete in my view.

So, many of these stocks will still do very well and some of these construction and infrastructure companies not only have tailwind in terms of order flows, execution, etc, but also they are key beneficiaries of the rate cut cycle because they tend to have leverage and as the rate cut passes through, so we will see benefits below the operating profit coming for these companies in terms of interest cost reductions also.