investment strategy: Varun Saboo on 3 sectors with value plus strength where fresh money can be put to work

There has been a quiet consolidation and it was high time as well that you had days like yesterday or even today perhaps for the market which has really been just one way ride up.
Varun Saboo: Obviously markets have been on a tear and that continues, so nothing has changed. It is just one day of correction and it again resolves the same thing and the run starts again. This has been happening multiple times. You can go and check for the last several months that we see one day of sharp correction and in the next few days or say a week or two markets reclaim the new high.

I do not think the trend is going to change soon. Why I do not see that is because fundamentally things are absolutely in place. We are not seeing any change in terms of any corporate commentary that we are in touch with. We are not seeing any change in the channel checks which we are doing. So, things do not change at all versus what I was speaking to you multiple times the last several months that I have come on the show.

One thing is there that we need to also recognise that most brokerages now will start shifting to FY27 numbers in a month or two. Again, with that there will be a 15% plus upside in earnings that we will see. So, Nifty which is currently at 19, 19.5 FY26 earnings somewhere around that most brokerage houses are, will look even again 15% cheaper.

So, there will be again more legs for Nifty to move up. Obviously, stocks underlying will move up faster and more. I am very hopeful and very positive on the markets and I still think that Nifty can easily trade upwards of 25 times even if I have to give a 2-2.5 times peg to the country’s GDP growth, so that is how I am seeing it. So, still see material upsides from current levels.

What are the sectors that you would put fresh money to work?
Varun Saboo: We need to find pockets where there is value and strength as well. So, strength is there across but where there is value I clearly see a case where banks should start re-rating. It has been a while that the banking pack has been under pressure. I was extremely positive about IT the last couple of times we spoke. IT will start going through a phase of consolidation although it is the best time for IT companies when the rate cut cycle starts, but the run has been very sharp in the last one, one-and-a-half months that we see. I think banks will start catching up. They have been under pressure for a while. Particularly in that also I would be very positive on PSU banks. So, PSU banks are where there is a lot of value and I do not see anything changing in terms of any negative coming there. I do not see the asset quality cycle going bad. In my view in this current scenario they are going to be one of the key beneficiaries with the rate cut cycle also starting and yes, I think numbers per se, etc, I do not see anything coming as such worrisome. So, valuations are extremely attractive. You are getting them all at a book or sub-book which is very cheap. So, I will be very positive about that. In autos, there are pockets of strength which I will still go with. Two-wheelers are something which we have been recommending. A new name comes up for me. I am going to be very positive on Eicher Motors. We can discuss that in detail later. But Eicher is my big top bet and that is going to have very, very strong legs going forward. In terms of tractors as a pack in the auto space we are very positive on.

Escorts and M&M both can do very well from here. So, yes, there are pockets of strength which we are seeing. We will go with that and we will figure out value also in spaces which have already run up, but we will try to figure out value in spaces which have also run. So, in terms of construction infra, I see PSP Projects as a name which is very interesting. So, there are many names. There are a lot of ideas which are still having a lot of value to go ahead with.

What is the view then when it comes to the defensive tilt? Is there anything that you like within FMCG and pharma?
Varun Saboo: Yes, both of these sectors have also done quite well in the last three to six months. See things are turning around when it comes to rural India. We are hearing quite a lot of positive commentary whenever we are doing channel checks around rural India. There is a lot of hope getting built in terms of how FMCG pickup could happen and that is what has led to the rally here. I do not see material upsides for the FMCG names from here honestly. This is not a time to be on the defensive. This is a time to still be in beta names and I will continue with the same thesis and not that they are cheap, so it is not that the valuations are giving you that comfort there.

If I have to buy something expensive, I might as well buy a growth stock rather than buying a defensive right now, so that view will continue that we would not prefer defensive right now.

Pharma is a very separate case. There are some stocks in pharma which are looking very good. There are certain themes in pharma which are looking very good. So, with the Biosecure Act being there, I think CDMO companies will benefit. In that unique place, Syngene, that could be an interesting one to look at for anyone. They are the only ones, probably one of the very few names who have taken a jump in biologics. So, we would be comfortable in the CDMO space if something has to be looked at.

Zydus is interesting to look at which has gone through its own correction. There has been a drug approval which came. In terms of downside, I hardly see any downside there. There have been too much concerns being based on Asacol HD, I think that is also done with. Things should start looking up for them as well.

Pharma also has pockets of strength which one can look at and obviously if you have to see the entire healthcare pack, hospitals are something which we are very positive on, most of the hospitals that we look at. Top being Apollo Hospital that we really like from here, so that is one name. Medanta is something which we like. We like Rainbow Hospital. So, there are multiple names in the hospital space also. So, yes, all in all you have to go bottom-up now more than looking top-down for the time being.

What do you like in the Eicher story? Is it the farm revival or is it RE that you are continuing to bet on?
Varun Saboo: It is a great mix of both. So, what is exciting is whenever I go on the ground or meet any company, dealers, channels etc in tier II, tier III villages, one thing which is coming and which is coming out as a very big story is the aspirational buying. The premiumisation story which is going on and that is continuing and that is gaining legs further. I see a big change there. I think people will keep moving higher. A 100-125cc biker will keep moving to 150 plus cc. A 150cc biker will move higher right. I see the cruiser segment to pick up because there is where the machoism is and that is what is exciting people on the ground.

And RE is the best brand when it comes to that and the brand holds a lot of value. We have seen that in the four wheelers playing over. We saw SUVs as a category when in the earlier days Scorpio and Bolero, etc, had come, where it was a very niche segment. Today it is the segment in the four-wheeler space. I see that happening in the two-wheeler space. It will take time. People will believe this once it happens. But I am calling it early and the category will expand big time and there is where RE holds a huge advantage.