Speaking to ET Now, Sabharwal said that structurally the market setup remains favourable because sentiment around India had turned excessively pessimistic over the past few weeks. According to him, that negativity itself has created a stronger base for equities to recover.
However, he cautioned that the sustainability of the rally will depend heavily on crude oil prices and developments surrounding the ongoing conflict in West Asia. While recent news flow hints at the possibility of some resolution, he noted that geopolitical situations remain highly volatile and unpredictable.
Sabharwal pointed out that the latest earnings season has been reasonably healthy, which provides downside protection to markets. At the same time, he believes the pace of the market’s upward movement will depend on how quickly geopolitical tensions ease. Instead of a runaway rally, he expects a more gradual and slightly volatile uptrend if uncertainty persists.
Chemical Stocks: Tactical Opportunity Rather Than Structural Revival
Chemical companies have emerged as strong performers after posting robust quarterly numbers. Stocks such as Sudarshan Chemical Industries have reported record topline growth and healthy operating margins, sparking optimism about a broader revival in the sector.Sabharwal, however, sees the current rally more as a trading opportunity than the beginning of a long-term structural upcycle.He explained that several chemical manufacturers benefited from a temporary mismatch between rising end-product prices and lower-cost raw material inventories carried earlier. This, in turn, led to a sharp improvement in profitability during the quarter.According to him, the sector’s recent earnings rebound must also be viewed in the context of the extremely depressed profitability levels witnessed earlier. He stressed that the demand environment has not improved dramatically enough to justify expectations of a sustained multi-year uptrend.
Sabharwal added that many chemical companies expanded aggressively after the post-pandemic profit boom, resulting in an unfavourable global demand-supply balance. While select specialty chemicals may continue to perform well, he does not believe the broader sector is entering a durable long-term bull phase.
OMCs Remain a High-Risk Policy BetOn oil marketing companies, Sabharwal maintained a cautious stance. Companies such as Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited remain highly sensitive to government policy decisions, making them difficult long-term investments from a shareholder perspective.
He noted that fuel price deregulation has effectively weakened, leaving profitability dependent on government intervention rather than market forces. In such an environment, investors are essentially betting on policy actions rather than business fundamentals.
Still, Sabharwal believes there could be trading opportunities if crude oil prices correct sharply following any diplomatic breakthrough in the Middle East. A significant fall in crude prices could lead to a strong recovery in profitability for OMCs, benefiting investors willing to take short-term exposure.
Rising Fuel Prices Could Trigger Broader Inflation RisksSabharwal also warned about the broader economic implications of elevated fuel prices. He highlighted that cost inflation has already started filtering through multiple sectors as companies face rising packaging, logistics, and raw material expenses.
Several companies across industries have reportedly announced price hikes ranging between 5% and 10% to offset cost pressures. Tyre manufacturers, in particular, have seen raw material costs rise sharply, further adding to inflationary stress.
According to Sabharwal, fuel prices have a multiplier effect across the economy because transportation costs influence virtually every segment. While food inflation remains relatively moderate for now, risks remain if weather disruptions linked to El Niño impact rainfall patterns.
He added that moderate inflation is not necessarily negative for corporate earnings because higher prices often support faster topline growth. However, the bigger question is whether companies will be able to protect margins while dealing with elevated input costs.
Sabharwal believes the inflation outlook will ultimately depend on how quickly geopolitical tensions ease, crude prices stabilise, and global shipping and logistics normalise.
Pharma Rally Continues, But Outlook Remains MixedPharmaceutical stocks have also outperformed recently, with the sector gaining nearly 6% this month. Companies including Cipla and Sun Pharmaceutical Industries remain in focus as investors search for defensive opportunities amid global uncertainty.
Sabharwal described the sector’s earnings performance as mixed. While some companies delivered steady results, most failed to significantly outperform expectations. He also noted emerging profitability pressure in certain large pharmaceutical firms.
He pointed out that smaller companies linked to the CDMO theme have reported strong numbers, though he remains cautious due to concerns around cash flow quality in parts of the sector.
Overall, Sabharwal does not see pharma as a secular market-wide theme at present, suggesting that stock-specific opportunities may continue to outperform broader sector bets.
