Markets look directionally positive despite global noise: Sandip Sabharwal

“If people need to invest, DLF seems to be better placed vis-à-vis the other companies on a valuation as well as risk-return perspective. But overall, my view is that real estate after the sharp run-up needs to consolidate for some more time,” says Sandip Sabharwal, asksandipsabharwal.com.

Give us a sense of where you see the markets heading today. We have had lots of news flow coming in over the weekend. Certain pharma stocks are going to be in focus. Defence, railways continue to surge. On the other side, you have pharma and FMCG that have been slightly lacklustre over the course of last week. Give us a sense of where you are seeing the markets headed today. What sectors could be in focus?
Sandip Sabharwal: Where the markets will end up today is very tough to predict, but directionally things look fine. So, over the weekend we obviously had the US debt downgrade which in my view will not have a significant impact on other emerging markets because it has nothing to do with that, but it is US specific and two rating agencies had already downgraded, so this was the third one, so it is not such a big news, but it could directionally put pressure on the US dollar which is obviously positive for emerging markets.

Now, on specific sectors, obviously we have seen a big frenzy in defence stocks and at this point of time after the run-up investors need to be cautious on where they are investing on the defence pack because valuations of many stocks have run way-way ahead and some public sector companies also are trading at price and ratios above 100 which is not justifiable under any assumption.Given the fact that yes, you did speak about defence that one also has seen a sharp rally and you are of the view that yes, you need to be a little cautious given the fact that you have valuations that are running ahead right now. But there is another sector also that has performed exceedingly well last week was realty index. 11% up move coming in for the realty index in the week gone by. What could be the likely triggers for someone to actually take a look at real estate space right now?
Sandip Sabharwal: On the real estate side, we have been getting mixed news flows. On one hand, we have had news that sales are somewhat stalling after two-three years of good run-up and price increases obviously have stalled now after a sharp up move post covid. On the other hand, there are also news flows on some specific launches getting huge interest on the pre-launch period. So, it is a mixed picture.

Many of the real estate stocks have corrected also. But I would still think that they are not really cheap relative to the growth prospects in the near term. So, we need to wait to see corrective moves, better opportunities, etc. So, if people need to invest, DLF seems to be better placed vis-à-vis the other companies on a valuation as well as risk-return perspective. But overall, my view is that real estate after the sharp run-up needs to consolidate for some more time.

Just wanted to have your take on this one because this has been one of those long pending issues both these telecom majors have been requesting the government to actually wave off some of the obligations that they have and the amount is very significant for Vodafone Idea. But now in the fresh comments that Vodafone Idea is coming up front and saying that in public interest they want this waiver to happen since the obligation amount is that big. Do you believe there stands a chance, any probability that this can actually go through and what steps can actually government plan to take the Supreme Court where are they headed, any possibility that you can share?
Sandip Sabharwal: I would think that it is a low probability event and because Supreme Court will go into the question of law and I do not think it is a question of law here so you are making a plea saying that just because we will go bankrupt and you give us relief, I do not know how much it will hold stead in the Supreme Court. So, I do not think investors should be investing based on this news. In case they are successful in getting relief, then obviously it will be a big relief and at that time people can re-evaluate their decisions.

Also, want to get your view on some of the textile counters and some other counters that have exposure to Bangladesh. Given the kind of news flow we have been hearing over the course of the week when it comes to trade restrictions, a lot of Indian textile companies and even apart from textile, the likes of Hero or Emami or Marico for that matter have quite the significant exposure from Bangladesh. Given the kind of news that we have heard, do you expect these counters to be in some sort of trouble today or do you believe that this is not going to impact a lot of these counters a lot?
Sandip Sabharwal: So, company by company some analysis needs to be done because how much of which company’s turnover or dependence comes from Bangladesh needs to be evaluated.

We know which company is impacted how much. Overall, as economy or on a gross basis the impact should not be so great because of the fact that the magnitude of the entire thing is I believe $700-800 million which is 6,000 crores, so which should not be a significant thing, but on specific company there could be an impact.

Just wanted to have your take on some of these exchange related counters as well as some of the broking stocks as well because of late and especially on Friday what a move that we have seen in stocks like BSE which is already at an all-time high, even CDSL shot up almost 8% on Friday and other than that some of these brokerage related counters from the likes of Angel One, they have been holding well. Anything incrementally that you are picking up in terms of these counters, what is really driving the move and on the valuation front do you believe that this actually needs a visit and these stocks are looking good at this point in time?
Sandip Sabharwal: Yes, two things – one, on the valuation, valuations obviously are extended for a majority of these companies and these companies tend to be highly correlated to the movement in the stock market.

So, when we had a bearish phase, we saw a sharp selloff in most of these stocks and now, we are in a bullish phase and people expect that turnover will increase, transactions will increase, etc, and as a result we have seen a sharp bounce back.