Stocks to Buy | Market Pulse: Sector Insights & Investment Cues with Sandip Sabharwal

Sandip Sabharwal in an interview to ET Now said that while it's difficult to predict where the markets will close today, the directional outlook remains positive. The recent US debt downgrade is unlikely to significantly affect emerging markets, as it is specific to the US. Since two rating agencies had already downgraded earlier, the latest move is not surprising. However, this could put pressure on the US dollar, which may benefit emerging markets overall.

The defence sector has experienced a strong rally, but investors should tread carefully now. Valuations have become excessive, with some public sector companies trading at unjustifiable price-to-earnings ratios exceeding 100. Meanwhile, the pharma and FMCG sectors, which were subdued last week, might continue to show underwhelming performance in the near term.

The real estate sector saw an impressive 11% gain last week. However, the news flow remains mixed. While some new project launches have attracted heavy interest, overall sales appear to be slowing after a post-COVID surge. Price increases have also plateaued. Most stocks are not attractively valued currently, though DLF stands out as relatively better placed in terms of valuations and risk-reward. The sector may need more time to consolidate.

Vodafone Idea has appealed for a waiver of its large financial obligations, citing public interest. However, Sandip sees this as a low-probability event since the Supreme Court will likely focus on legal principles rather than business hardships. Investors should not base their decisions on this news. If relief is eventually granted, the situation can be reassessed then.

Several Indian companies, including those in textiles and FMCG like Hero, Emami, and Marico, have notable exposure to Bangladesh. With recent news around potential trade restrictions, some impact is possible. However, unless individual companies disclose the extent of their exposure, it’s difficult to gauge the exact effect. On a broader scale, the potential trade loss of ₹6,000 crore isn’t large enough to affect the economy significantly.

Stocks like BSE and CDSL have surged recently, with BSE hitting all-time highs and CDSL jumping 8% on Friday. Broking stocks such as Angel One have also held firm. The surge is driven by positive sentiment and rising turnover expectations in a bullish market. However, valuations are stretched, and these companies are highly market-sensitive. Investors should wait for better entry points during corrections.

In the current market, sectors linked to interest rate sensitivity and consumer demand revival still offer value. This includes many auto stocks, consumer durable companies, and infrastructure or capital goods businesses. These areas showed subdued performance last year, partly due to election-related delays. A recovery in orders and demand this year could make them attractive investment opportunities.

Many platform-based companies, including Swiggy and Zomato, are taking steps that may negatively impact their cash flows and profitability, despite earlier improvements. While their top-line growth may excite analysts, the consistent losses and questionable capital allocation raise concerns. Particularly, the quick delivery business lacks a competitive moat, making the outlook for such firms challenging over the next year.

Contrary to some reports, cement companies have only posted low single-digit volume growth. On the positive side, strong cost control has helped maintain profitability even as cement prices remain flat. However, a major concern is the increasing supply, which undermines any attempts at price hikes. Valuations in the sector are not cheap, and meaningful improvement would require a clear uptick in volumes, which doesn’t seem imminent.

Companies in the EMS space, such as Amber Enterprises and Kaynes, have seen both corrections and bounce-backs recently. Despite this, their valuations remain much higher than even established branded consumer durable companies. Given that EMS businesses mainly provide outsourced manufacturing and operate on low margins, it's hard to justify current prices. While a few names may still perform well, the sector as a whole appears overvalued.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)