In this rally, where are you looking at reducing or lightening your portfolio? If markets fall, where are you looking at adding some stocks?
Sandip Sabharwal: We are already at 12% to 15% cash allocation. Now I am more on the camp where we wait, ride whatever we are holding because I am comfortable with the stocks which we hold and then wait for opportunities to deploy this money and any additional money which keeps on coming and wait for that. So, deployment will be very stock specific, but largely in capital goods/ infra space if stocks correct and defence space if stocks correct. Those will be the two interesting spaces to have a lookout on. Since you have a few stocks you want to track, when the correction happens, then we allocate in whichever corrects more. It is very dynamic at this stage.
The first theme I got to, second theme I missed it.
Sandip Sabharwal: On the defence theme, we have seen from the euphoric levels, there has been some corrective moves. But among the various themes of investment which are playing out in India, defence is the most durable one and that is where we could get some stocks cheaper because even now valuations seem a bit extended, I would be keen on those.
Why defence? What do you like about it? It’s true the order books are growing, but are the defence companies future ready? The world is talking about drones and Indian defence companies are still making ships and submarines, which may not be the future of defence fighting.
Sandip Sabharwal: Yes, so the investments are going all across. There is a deterrence and then there is something on the attack side. It is all about air power now and to that extent, like HAL is there, but then for the latest generation fighter, obviously, we do not have the facility. But let us use the entire satellite theme, even on drones, there are investments happening, on automation, on getting future-ready in terms of being able to track things and operate it in a precise manner. Things are happening in India, but we are not really there and it will be at least a decade or more when we actually get there.
The first one off the block will be IT. A consensus has already built up that the worst is behind us and, gradually, an expansion will happen. Are we in for a surprise this earnings season from IT or are we in for some disappointment?
Sandip Sabharwal: It is very tough to say frankly, because the commentary and the interactions with IT companies indicate disparate views. There are some companies which have indicated some small uptake. There are others who are saying that the situation remains the same. Accenture results created some excitement, but again, if you look at the guidance for growth, despite them being ahead of most Indian IT companies in terms of AI investments and getting order flows from that segment, the growth indication is just 3% to 6%.
So, in that context, when most of the stocks have already valued up 20-25%, then it needs a significant positive outlook change for stocks to go up further higher. People should be cautious at this stage. I do not think we should be trying to go overboard investing into this sector till we hear out the companies.Lots are working in favour of some of these large paint companies, but there is also a massive consolidation that we are seeing within the space, and lots of new players are entering the fray. How are you looking at some of the well-established paint players?
Sandip Sabharwal: The sector overall should be avoided. We have seen the stocks come back 15-20% from the bottoms as the raw material prices plummeted and there was news flow on some price hikes by these companies. But on the other hand, because Grasim is trying to make a foray and gain market share, there is also news flow that they are increasing incentives, credit terms, etc, for the dealers and customers, so the impact of that will be further seen over the next few quarters. So, overall, the paints sector outlook should be cautious.