Domestic economy stocks lead the way
Shah’s top investment picks are firmly rooted in India’s domestic growth story. Chemicals, capital goods, and banking are his three preferred sectors right now, with a special emphasis on individual companies that have seen significant price corrections over the past year or more.
“Valuations were a problem over the last one to one-and-a-half years. They are still a problem, but less of a problem,” Shah explained. Many stocks have corrected enough to reach levels where they are at least worth considering, even if they are not cheap by historical standards.
Chemicals: Short-term pain, long-term opportunity
Within the chemicals space, Shah acknowledges that several companies are facing immediate headwinds. Force majeure declarations due to gas unavailability and steep raw material cost increases — largely triggered by the ongoing geopolitical conflict in Europe — have created short-term pressure.
Companies like Deepak Nitrite and Navin Fluorine are among those feeling this strain. However, Shah sees these as fundamentally strong businesses that will recover once supply-side pressures ease. For patient investors with a long-term horizon, these names could present a compelling entry opportunity once the dust settles.
FMCG: Defensive, but still too expensive
Despite a positive Friday session for FMCG stocks and expectations of steady volume growth in the fourth quarter, Shah urges caution on the sector. His core concern is valuation — many FMCG companies continue to trade at very high multiples relative to their volume growth of just five to ten percent.
Paying 60 to 70 times earnings for a business growing volumes in single digits is difficult to justify, he argues. The one exception he flags is ITC, which has seen a meaningful correction and now looks more attractively priced compared to its peers. Beyond ITC, Shah would largely stay on the sidelines in FMCG for now.
Defence: Great story, wrong price
The defence sector has been generating considerable excitement, with companies like Apollo Micro Systems jumping sharply after receiving manufacturing approvals, and names like Zen Technologies and Paras Defence drawing investor attention. Shah does not dispute the long-term structural case for defence spending — as long as global conflicts persist, governments will keep investing in defence equipment and ammunition.
However, his concern is valuation. Companies trading at 40 to 60 times earnings are simply not cheap, even after a 50 percent correction from their peaks. If further correction were to happen, current buyers could still be caught on the wrong side.
“The growth opportunity is huge, but the valuations do not justify investments as of now,” Shah said plainly.
Capital goods and banking round out the portfolio
Beyond chemicals, capital goods companies remain a key part of Shah’s preferred portfolio. India’s infrastructure and manufacturing push continues to create multi-year tailwinds for engineering and industrial companies, making this a reliable theme for medium to long-term investors.
Banking, particularly select names that have corrected, rounds out his recommended allocation. Like chemicals, the idea is to find quality businesses where price has come down enough to offer a reasonable margin of safety.
The bottom line
Aditya Shah’s message to investors is straightforward — be selective, prioritize domestic economy plays, and resist the temptation to chase expensive stories in FMCG or defence just because the narrative sounds compelling. In this market, price still matters.