“Most active foreign investor funds are reallocating out of India. Money is going into many other markets—Korea, Hong Kong, Brazil—so many markets are getting money, but India is seeing outflows,” Sabharwal said in a conversation with ET Now. He added that this trend-driven movement could persist for some time, even though company-level data tells a different story.
Sabharwal pointed out that recent earnings from several sectors indicate stability and even improvement. Banking results from Axis Bank and Kotak Mahindra Bank suggest a pickup in credit growth, while asset quality remains strong. UltraTech Cement reported robust third-quarter volumes, growing faster than the industry, with overall cement demand rising 9–10%, a notably healthy figure. On the consumption front, Godrej Consumer Products has also indicated a revival in demand.
“I do not think things are as negative as what the market screen or the numbers on the market are reflecting,” he said, adding that the correction has created buying opportunities. “Many stocks are much cheaper than they were a month or three months back. In mid- and small-caps, some companies may be nearly 50% cheaper today. This is definitely an opportunity to get into the markets rather than get out.”
However, Sabharwal acknowledged that choosing the right stocks has become more complex following a broad earnings reset. While valuations may look attractive, investors are now faced with a wide universe of options, making selectivity critical.
On large caps, he highlighted Larsen & Toubro as a strong candidate. In banking, Axis Bank stands out on both valuation and performance, while ICICI Bank remains a quality franchise despite some recent softness in numbers that has led to a stock correction. In consumption, Sabharwal believes Godrej Consumer Products offers a potential 15–20% return over the next 12–15 months, based on management commentary and demand trends.He noted that many investors may stay cautious ahead of the Union Budget, although expectations of major positive surprises remain low. “The probability of not much coming from the Budget is greater, but that would not necessarily be negative. A lot of the negatives are already in the price,” he said.Globally, Sabharwal flagged a broader diversification trade underway, with capital moving away from equities into alternative assets such as commodities. He described the sharp moves in metals and precious commodities as extreme. “Gold moving up 2–3% every day and silver moving 5–10% every day is completely unsustainable. These straight-line moves remind me of the 2000 technology bubble,” he cautioned.
He warned that retail investors who exited equities after losses in overvalued mid- and small-cap stocks may now be chasing commodities at similarly stretched levels. “Where this will stop is very tough to say. Silver moving up 10% in a day is totally unnatural. People should be cautious.”
On earnings growth, Sabharwal believes FY27 could see a meaningful rebound. With inflation expected to rise from near-zero levels to around 3–4%, as indicated by the RBI, nominal growth should improve. “When inflation is zero or 1%, you cannot expect 15% earnings growth. Next year, 14–15% earnings growth over a low base is realistically possible,” he said, though he added that forecasting beyond that remains difficult.
He also highlighted distortions caused by labour code implementation and margin pressures in banking, particularly due to net interest margin compression. These factors, he said, should ease next year, potentially allowing banking earnings to accelerate.
Within banks, Sabharwal prefers private sector lenders and remains selective among public sector banks. “In PSUs, we hold only SBI. That is the only bank I buy in PSU banks,” he said, citing concerns around unpredictable asset quality issues and a steady loss in deposit market share among public sector banks. He noted that PSBs’ share of deposits has fallen from 63% five years ago to around 54–55% today, which could raise funding costs and hurt competitiveness.
While consolidation through further mergers could eventually address these challenges, Sabharwal believes the issues remain unresolved for now, reinforcing the need for caution and selectivity in PSU banking stocks.
