Banks are the bright spot: But not all equally
Sabharwal’s strongest conviction right now sits with large private banks. The key reason is asset quality. Net NPAs are well under control across the board, which means banks are well-positioned to capitalise as credit demand recovers. System credit growth has already picked up, and he expects it to accelerate further next year.
On individual names, ICICI Bank is his clear preference. While earnings growth at ICICI and HDFC Bank looks similar on the surface, ICICI significantly outperformed on net interest income — the core of a bank’s business. With NIMs already at 4.3%, there is limited room to push further, but the quality of operations makes it the standout largecap bet.
SBI has also performed well, though its NIM trajectory this quarter will be the deciding factor for the stock. HDFC Bank, in his view, remains a work in progress — still recovering from past structural issues and unlikely to match system credit growth rates in the near term.
IT: Steady, not exciting
On the IT front, Sabharwal’s read is neutral. Results have been acceptable — no major downside triggers, but nothing to drive a fresh re-rating either. Some short-covering and buying in US markets could provide a floor for select names, but largecap IT remains range-bound.
Among tier-II names, for Persistent, Coforge and Mphasis, growth numbers could look better, and stocks have corrected substantially. However, valuations remain at a premium to largecaps, and smaller companies carry more client-concentration risk. A positive surprise could move them sharply, but the setup requires careful stock selection.
FMCG: Watch the guidance, Not just the numbers
Raw material headwinds were largely manageable in the January-March quarter, but Sabharwal flags the next few quarters as the real test. Several FMCG companies have already indicated rising input costs going forward.The saving grace: the sector has not taken meaningful price hikes in two to three years. That gives companies some headroom to pass on cost increases without alarming consumers. Whether they use that lever — and how aggressively — will define which names hold up in earnings.
Real estate: Selective value has emerged
The price-hike cycle in real estate has stalled, which effectively removes the investor-driven demand that powered much of the sector’s earlier run. Sabharwal sees this as a reset to genuine end-user demand, and prefers companies focused on execution over speculation.
DLF is his pick in this space. The stock ran to around Rs 800, corrected to Rs 600, and he considers the current level reasonably attractive — one he has already accumulated at lower prices.
Housing finance and microfinance: Staying away
Pure-play housing finance companies do not appeal to him at this stage. Margins are under pressure, the borrowing model is predominantly wholesale rather than retail deposits, and competitive intensity is high. He would rather own diversified NBFCs or banks.
On microfinance, his caution is longer-standing — the space is cyclically volatile by nature. However, banks with microfinance exposure as just one component of their business, and Manappuram Finance where potential stabilisation of its microfinance subsidiary could drive a re-rating, are worth watching.