Defence valuations 'obnoxious'; private banks look strong: Sandip Sabharwal's full market playbook

Sandip Sabharwal of asksandipsabharwal.com has a clear message for investors chasing the defence rally: the excitement is real, but the prices on many stocks have gone far ahead of reality.

Speaking on ET Now, Sabharwal laid out his views across defence, pharma, private banks, IT, and manufacturing, offering a candid, sector-by-sector read on where the genuine opportunities lie and where investors need to pump the brakes.

Defence: One strong pick, a lot of overpriced names

Sabharwal holds Bharat Electronics, and he remains convinced about it. "It will do very well over the years as many Indian-made products get demand from other countries and overseas orders start to build," he said, adding that the order booking outlook remains strong.


On HAL, his view is more measured. The company is not expensively valued post-correction, he acknowledged, but its operational inefficiency remains a concern.

The sharper warning was reserved for the broader small-cap private defence space, where he described valuations as frankly "obnoxious." Price-to-earnings ratios of 100 to 200 times, he said, are simply not justified. He also flagged a tactical risk: if the Iran ceasefire holds, investor interest could rotate away from defence entirely back into economy-linked stocks, reversing the very trade that drove many of these names up in the first place.

Pharma: Decent but not exciting

On pharma, Sabharwal was measured. The large-cap names like Cipla, Dr Reddy's and Sun Pharma continue to perform reasonably, he said, but there is nothing particularly exciting in the story. Valuations are not stretched, but there is no compelling new catalyst either.

The CDMO space has generated more buzz, with smaller companies seeing sharper stock moves. However, Sabharwal admitted it is a difficult space to analyse rigorously given the molecule-by-molecule complexity involved.

Private banks: The cycle is turning

This was arguably Sabharwal's most constructive call of the conversation. He believes the entire private banking sector is set to do well as credit growth strengthens and profitability growth accelerates.
He pointed to two specific tailwinds. First, the RBI's rate-cutting cycle is largely behind the market, meaning the squeeze on net interest margins is easing. Second, if the anticipated FCNR fundraising of $50–60 billion comes through, it would bring in a much-needed deposit pool at a time when the gap between deposit and credit growth has been widening.

On stock picks, he noted HDFC Bank has been a significant underperformer and a reversal is possible — particularly if foreign fund flows into India resume. ICICI Bank retains leadership, with Kotak and Axis also expected to participate in the sector's recovery.

IT: Cheap, but triggers are missing

On IT, Sabharwal was not dismissive but was far from enthusiastic. Even at 12–13 times one-year forward earnings, he acknowledged the valuations look attractive — but said the triggers for a re-rating are simply not visible yet, a view reinforced by Accenture's recent results.

That said, he left the door open: a sharp enough selloff can sometimes make a stock move before the thesis fully plays out. For contrarian investors who cannot find better ideas elsewhere, the sector could still deliver 15–20% returns.

Manufacturing and a chemicals warning

In manufacturing, Sabharwal cited Bharat Forge, held in his portfolio, as a standout for its aggressive push into non-auto segments. Power equipment and transmission companies also carry momentum, though he cautioned that names like Hitachi Energy and GE Vernova have reached valuations that are hard to justify even with a strong growth outlook.

His most immediate warning was on PVC and plastics-linked companies. A sharp crash in crude-linked chemical prices means companies that reported inventory gains last quarter are likely to report inventory losses this quarter. The near-term outlook is cautious, though longer-term, lower input prices could actually drive demand recovery for companies that consume these products.