Sandip Sabharwal Calls It A Tactical Trade Stays Bullish On Autos

India's IT sector may finally be attracting value investors after a prolonged correction, but market expert, Sandip Sabharwal believes the rally is unlikely to evolve into a long-term structural uptrend. While lower valuations and attractive dividend yields have improved the risk-reward equation, he sees the sector as a tactical opportunity rather than a buy-and-hold investment. The IT sector has been on a one-way downswing for almost the last year, and over the last three-four years it has gone nowhere. Valuations for TCS and Infosys have come down, so they present opportunities for value investors. But I see this more as a trading sector... we could make 10-20%, but I do not see the trend completely reversing, he said.Sabharwal said he has taken small positions in large-cap IT names but intends to exit once they generate reasonable returns instead of holding them for the long term.DMart's Valuation Still Looks StretchedCommenting on Avenue Supermarts' first-quarter update, Sabharwal said the retailer continues to deliver respectable operational performance, but its premium valuation remains difficult to justify. The performance is fine, but the valuations do not justify the growth. There is no upside to the stock in my view because of the very high valuations. It is unlikely to outperform, he said.Even though broader market sentiment remains supportive, he believes any upside in the stock will likely remain limited.Marico Reinforces Consumption StrengthMarico's stronger-than-expected quarterly update has strengthened confidence in the consumption story, according to Sabharwal. He pointed to healthy volume growth, improving rural demand and a positive outlook as encouraging signs for the broader FMCG sector. The numbers were very-very strong and the outlook also seems quite positive. It gives a positive connotation to the entire consumption space, he said.He added that his channel checks indicate consumer demand remained resilient during the first quarter and expects this trend to be reflected in upcoming earnings from other consumer companies.Margin Pressures Should EaseWhile higher input costs could weigh on margins for some FMCG companies in the near term, Sabharwal expects the pressure to be temporary as raw material prices cool. Demand has been holding up on the ground. Packaging costs are already below pre-war levels, and those benefits will start coming in. Prices will largely hold and help margins for the rest of the year, he said.Auto Sector Well Positioned for GrowthSabharwal remains constructive on the automobile sector after healthy sales across both conventional and electric vehicles. He believes the ongoing shift toward EVs is also accelerating replacement demand. Numbers have been very strong across ICE as well as EV portfolios. EV penetration is touching new records, and replacement demand could keep the momentum going, he said.He, however, cautioned that an unfavourable monsoon remains the biggest risk for rural demand. The possibility of a poor monsoon remains the key risk, but many earlier concerns have eased. The sector is well placed for growth, he said.OEMs and Auto Ancillaries Both AttractiveSabharwal expects both vehicle manufacturers and component makers to benefit from improving industry conditions, especially as export-related tariff concerns have moderated. We own Maruti, M&M and Bajaj Auto. All these companies should do reasonably well. We also have a small holding in Greaves Cotton, which could also do well, he said.EV Adoption Has More Room to GrowThe momentum in electric two-wheelers is unlikely to slow anytime soon, Sabharwal said, citing lower running costs and a faster replacement cycle. This momentum will continue and the shift is not going to stop. The EV market is huge, and replacement demand could accelerate further, he said.Liquidity Will Determine Credit GrowthOn the banking sector, Sabharwal said credit growth will eventually depend on the availability of deposits, although expected FCNR inflows could provide temporary support. If liquidity does not improve, it will cap credit growth at some stage. FCNR flows could bridge the gap this year, but deposit growth has to keep pace, he said.He added that stable foreign fund flows could also improve overall system liquidity.Tata Motors Still Faces Execution ChallengesSabharwal believes Tata Motors continues to remain a stock that periodically disappoints despite improvements in its domestic business. Tata Motors is always a work in progress. Some quarters are good, then guidance disappoints the market. But domestically they seem to be stabilizing, he said.Titan Remains the Preferred Jewellery BetDespite strong updates from some jewellery companies, Sabharwal continues to favour Titan over the rest of the sector because of governance concerns elsewhere. For many jewellery companies, corporate governance remains a concern. Titan is the only credible player I see. If someone has to play the sector, they should play it through Titan, he said.