Stocks to Buy | Sector Spotlight: Capital goods, real estate, and EMS in focus

Sanjay H Parekh in an interview to ET Now said that overall market valuations are currently fair but not cheap. The pace at which markets have moved suggests a need for caution. He expects both time and price corrections ahead. While Q4 earnings were weak, Q1 is likely to remain soft, and even Q2 may not bring a clear recovery. He emphasises that earnings momentum might only pick up meaningfully from Q3 onwards.

Given the uncertain earnings landscape, Parekh stresses the need for a higher margin of safety in stock selection. His approach is conservative for now, with new investments being made only when downside risks are adequately cushioned. He remains hopeful that the benefits of lower interest rates and good monsoons will begin to reflect in the second half of the financial year, leading to better earnings from Q3 onwards.

Parekh’s portfolio positioning is tilted towards domestic sectors and underweight on global themes. He maintains a mild overweight in discretionary and capital goods, with specific stock picks like Polycab, DLF, and Syrma. In financials, he remains neutral overall but is underweight on banks due to NIM and credit growth concerns. However, he prefers NBFCs, housing finance, and capital market firms, where growth visibility and valuation comfort are higher. He has no exposure to oil & gas and FMCG, and is underweight on IT.

Parekh highlights that balance sheets across the economy are in excellent shape. The government’s fiscal health is strong, the RBI has infused ₹7–8 lakh crore in liquidity, and banks have the lowest non-performing assets in decades. Corporates are operating with historically low leverage, and household wealth has surged, supported by real estate, equities, and gold. These factors provide a solid foundation for future growth.

India is trading at around 20 times FY27 estimated earnings, assuming Nifty EPS of 1300–1320. This is significantly higher than other emerging markets, which are valued at 10–11 times. Parekh cautions that whenever India has traded above the 20x mark, market returns over the next 12 months have typically been weak. He emphasises that sustained earnings recovery is crucial to justify current valuations and unlock further market upside.

In Parekh’s view, the key triggers that could shift market direction include stronger earnings prints from Q3 onwards and increased government spending. Additionally, resolution or clarity on global trade uncertainties—such as potential tariffs from the US—could also act as an inflexion point. Until then, the market may continue to remain range-bound, cautiously waiting for concrete drivers to emerge.

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