Why tobacco and consumption stocks are surging
The recent uptick in tobacco, alcobev, and broader consumption stocks is not just noise. According to Mehta, markets are beginning to reward businesses that combine a good story with real earnings, strong cash flows, and positive management commentary. Many consumption companies — both discretionary and non-discretionary — have reported margin expansion or volume growth, triggering a rerating that has been long overdue.
“After a two, three, four-year hibernation for a lot of such businesses, they are coming back to the fore,” Mehta noted. While sectors like capital expenditure, manufacturing, engineering, and banking led the earlier phase of the rally, the baton is now passing to consumption-oriented sectors that were once considered defensive plays.
Missed the rally from 22,300 to 24,300? Here’s what to do
Timing the market has become increasingly difficult, with sharp gap-ups and gap-downs becoming routine over the past few months. Mehta’s advice to investors who missed the first 2,000 points on the Nifty is straightforward — stop worrying and start building a portfolio around three clear themes.
Theme 1: Financialization of savings
The first theme is about how Indians are increasingly moving their money into financial products. This includes private sector banks, NBFCs, wealth managers, stock brokers, asset management companies, exchanges, and other financial market intermediaries. As more households shift from physical assets like gold and real estate toward equities and mutual funds, this segment is expected to see sustained growth over the next two to three years.
Theme 2: Capital expenditure and infrastructure
The second theme revolves around India’s ongoing infrastructure push. Capital goods companies, engineering firms, air compression manufacturers, HVDC players, and power ancillary companies are all well-positioned to benefit from continued government and private sector spending on building capacity. This theme has already delivered strong returns but Mehta believes there is more runway ahead.
Theme 3: Consumption, discretionary and non-discretionary
The third theme blends both discretionary and non-discretionary consumption, with a particular emphasis on the automobile sector. Passenger vehicles and two-wheelers have seen strong momentum over the past six months, driven by GST-related tailwinds and India’s still-low per capita vehicle ownership, which leaves significant room for growth.
Private sector banks set to outperform PSU peers
On the banking debate — private versus public sector — Mehta has a clear view. PSU banks have had a strong two-year run, benefiting from benign credit costs, recovery pipelines, and confident management guidance. However, from here on, he believes private sector banks are better placed to outperform over the next two years.
Large private sector banks such as HDFC Bank, ICICI Bank, and Axis Bank have underperformed partly because of sustained selling by foreign institutional investors, who hold large positions in these names. But the operational commentary from these banks has been improving, and metrics like deposit growth, credit growth, and loan advances are all worth watching closely.
Private sector banks currently trade at a valuation premium to PSU banks, but Mehta argues that premium is justified given the improving fundamentals and the likelihood of FII selling pressure easing.
The bottom line
For investors building a fresh portfolio today, Mehta recommends a mix of financialization plays, capital expenditure beneficiaries, and consumption-driven businesses. A two to three year horizon, he believes, should deliver strong results across all three themes.