Private banks, energy and telecom look attractive amid market swings: Rahul Shah

Amid persistent global uncertainty and geopolitical tensions, market volatility has once again taken centre stage for investors. While the fluctuations have unsettled short-term sentiment, they are also creating opportunities for long-term investors willing to look beyond immediate risks. Speaking to ET Now, Rahul Shah from MOFSL said that episodes of heightened volatility often lead to mispricing in the market, which can be used to build portfolios over time.

“What we have been seeing lot of volatility in the markets be it be earlier trade war, then again we have come around now with this kind of a geopolitical issues. So, my sense one thing is very clear whenever such kind of things happen and there is going to be a mispricing in the markets and this mispricing one should look at building it for a portfolio.”

He noted that crises historically tend to create opportunities for investors, even though predicting the duration of conflicts or uncertainty remains difficult. “So, if we look at any of the crisis in past short-term, maybe if you ask me how long the war is going to last, how long this going to do this but these are the opportunities where the valuations are comfort and the growth looks like for a lot of companies in saying then one should definitely get into it.” According to him, several segments within the largecap space remain resilient even during geopolitical stress. “If we look at it lot of pockets in a largecap space if we look at it lot of sectors in that space as well which is going to be resilient to in terms of any such geopolitical issues.”

Shah also pointed out that largecaps have lagged behind midcaps over the past two to three years, creating an attractive entry point for investors. “If you compare midcap versus the largecap in last two-three years performance, the largecaps have underperformed against the midcaps and I feel that in select pockets of largecap continue to do well.” Among the sectors he prefers, private sector banks stand out due to strong balance sheets and stable growth outlook. “One is obviously a private sector banks if we look at it, healthy numbers, good balance sheets, and going forward the clarity about that and CAGR return in terms of growth 12-13% what they have guided for next two years.” He added that valuations in the sector remain below their long-term averages. “If you look at historically last 10-year PE average if I look at it, those are trading below to their historical averages. So, this sector is bound and that is what the reflection what we saw yesterday also.”

Telecom is another area he believes investors should consider. “Second is telecom. We have seen that Bharti has outperformed last two years but still looks like Bharti and Reliance both should be added at this juncture in that sector.” Shah also highlighted consumer discretionary and automobile companies as attractive plays tied to domestic growth. “Thirdly, consumer discretionary, auto if we look at it, lot of domestic plays continue to do post GST-2.” Summing up his view on the broader market, he said, “If I have to sum it up yes, I would be a buyer in the largecap space for the next six months to one year story.”

On the metals sector, which has recently corrected after leading the rally earlier, Shah believes the underlying story remains intact. “As you rightly pointed out yes, the metals were the sector leaders if I look at it, in last one year if you look at entire metal has a play has done quite well.” He added that the sector showed relative resilience during the latest market correction. “If we look at yesterday’s correction also they were resilient in terms of they have not corrected the way it would have in terms of the markets like this.” With base metal prices remaining firm, he expects earnings momentum to continue. “Obviously the base metal prices are firm and I do not think so there is major correction in it so that is a reflection in the earnings which is going to come in the metal stocks.” Once the broader market stabilises, the sector could rebound quickly. “Maybe when it settles, maybe then this should also again bounce back very sharply.”

Discussing Larsen & Toubro, Shah acknowledged that concerns around execution in the Middle East have weighed on the stock. “One is obviously the core business which is hitting hard right now because of the Middle East issue and that is what we have seen the sharp correction in the prices as well.” He also noted that the valuation of some subsidiaries has been affected by the selloff in IT stocks amid concerns around AI disruption. “If we have to look at some of the valuations of the subsidiaries what they have, so that remains strong but again because of the AI disrupt that IT companies again have seen major kind of selloff in those companies as well.” Motilal Oswal has slightly lowered its valuation assumptions but remains constructive on the long-term outlook. “We were valuing earlier at 27 times, now we are valuing at 25 times but still for the next two years things remain robust.” He added that while the stock could underperform in the near term, the correction offers an opportunity for investors with a longer horizon. “Maybe might underperform, maybe a quarter or so, but if you are investor for a next one year, this could be a good opportunity to build it into your portfolio.” Shah also remains optimistic about the broader energy ecosystem. “Last two-three years we have seen this entire energy as a sector has gone through a lot of this thing and they have done quite well.” While valuations had earlier run up sharply, he said they have cooled off over the past year. “In last six months to a year, we have seen the valuations also have got cooled off in most of the companies which were richly valued.” According to him, the sector has strong long-term growth visibility. “This sector is poised for the next five-six years, the growth is going to be there and it continues to do pretty well.” He cited companies such as Tata Power, NTPC and JSW Energy as preferred names, while also pointing to the attractiveness of power financiers. “They are very ripe and juicy at this point of time, available at very dirt cheap valuations with a good dividend yield as well.”

On city gas distributors, Shah acknowledged the near-term pressure due to rising spot gas prices and supply constraints. “So yes, this could be painful for this and what we have seen in the prices also, most of them corrected in last two-three days.” However, he believes the impact is likely to be temporary. “What we believe is this is going to be a temporary impact.” For long-term investors, the correction may create opportunities. “In city gas distribution IGL looks, the stock has already corrected also recently… around more than 20%, 25%.” He added that while earnings could remain under pressure for a quarter or two, valuations are already reflecting much of the risk. “Maybe there could be a pain for a quarter or so but that is what is reflected in the prices as well at this point.”

The rapid expansion of artificial intelligence infrastructure is also bringing attention to data centre investments in India. Shah said the theme has gained traction over the past year. “There is a lot of opportunity and we have seen in last six months to a year a lot of stocks and then sector has done quite well.” However, he advised investors to diversify their exposure. “My sense is one should play a basket of a three-four stocks not one and one should wait for it.”

Defence companies, which have seen strong investor interest over the past year and a half, also remain part of his long-term investment view. “Defence sector since last year-and-a-half we have seen in the focus and most of the stocks have done quite well.” With geopolitical tensions rising and domestic defence manufacturing gaining momentum, he believes the sector will remain important for portfolios. “This sector is poised to be a significant part and most of the investors’ portfolio.” Among the stocks, he highlighted Hindustan Aeronautics Ltd as a value play. “Including HAL which looks like a good value play in the entire basket.” He added that the company’s fundamentals remain strong. “Looking at the valuations and looking at healthy balance sheets 29% ROI growth and reasonably valued at 30x, so we believe that HAL should be a good investment play for the investors in their portfolio.”

Shah also sees opportunities in consumer durables, particularly with the possibility of an early summer boosting demand for cooling products. “The entire sector which is related to the domestic economy, so looks like should do well and the summer could be what we looks like early summer.” Companies linked to cooling appliances may benefit from the seasonal demand surge. “Obviously this entire cooling theme and the consumer durable should do well starting from Blue Star, looking at LG, as well as Voltas.”

Finally, he remains positive on InterGlobe Aviation after the recent correction in its share price. “Looks very interesting. Obviously last tough things for them and post recent correction and obviously augurs well.” While rising crude oil prices may create near-term headwinds, the airline’s dominant market share and strong passenger demand support its longer-term outlook. “Looking at the passenger traffic continue to remain robust… and as you rightly pointed out the dominant market share and we do not have any competitors to play with in terms of a listed entity.” As a result, he believes the stock offers an attractive entry point. “So definitely, InterGlobe Aviation looks very-very interesting and one should definitely look at buying at the current levels.”