Data-centre boom exciting but risky; focus on green energy and select banks, says Sameer Dalal – News Air Insight

India’s data-centre opportunity is fast turning into a hot theme for equity investors, but market veteran Sameer Dalal, Owner, Natverlal & Sons Stockbrokers, warns against rushing into the space. Speaking to ET Now, Dalal said the sector involves heavy upfront capex, uncertain utilisation levels, and large ongoing depreciation, making early investments risky.

“Data centres are the back office of the AI boom, so you can’t ignore the trend,” Dalal said. “But large capex + low initial utilisation can crush profitability. I’m not buying stocks just because companies are entering data centres.”

Dalal added that replacing storage hardware is expensive and frequent, making depreciation a very real cash cost, unlike other infrastructure plays.

Valuation comfort: Only in selective pockets

According to Dalal, Indian markets have turned complacent about high valuations, making stock-picking more important than ever.

“Sector-wide valuation comfort does NOT exist. But individual stocks within sectors still look attractive,” he said. He expects markets to remain range-bound with a mild negative bias due to FII selling, fresh equity supply and modest earnings growth.

Dalal’s approach is a blend of growth + value, not one versus the other.

Top themes Dalal is backing

1. Green energy: selective long-term winners

Dalal sees strong opportunity in renewables, especially:

• Sterling & Wilson Solar: Despite recent setbacks, he believes the business can recover.
• KPI Green Energy: Attractive long-term model despite near-term consolidation.
• Suzlon: Upside exists but stock needs a six-month consolidation as utilisation improves.
• Solar cell manufacturers like Waaree, though currently expensive.

“Local solar cell manufacturing is the next big structural shift,” he said, adding that Reliance’s backward integration is promising, but too small to move the needle for such a large conglomerate.

2. Banking: strong growth ahead

Dalal flagged Axis Bank, IndusInd Bank and IDFC First Bank as offering a combination of growth visibility and reasonable valuations.

“Banks have managed deposit repricing exceptionally well, NIMs may have bottomed, and liquidity is improving. Select banks are still trading at attractive multiples,” he said.

This will be a stock-picker’s market: Dalal believes broad indices will not deliver runaway returns in the near term. Instead, investors should prepare for consolidation while focusing on individual stocks.

“Growth + value together is the formula. This is not an index-buying market anymore,” he said.