Speaking to ET Now, Shah said Reliance’s annual general meeting (AGM) offered several important takeaways that strengthened the long-term investment case for the company.
“Reliance has been stuck in a range for the last two to three years, and investors have effectively seen zero returns. But the AGM highlighted three to four major positives. The company announced its plan to double EBITDA over the next five years, which is important. Secondly, it spoke about the much-awaited Jio Platforms IPO, giving investors clarity. Jio is expected to contribute nearly 80% of EBITDA, making it the most important business. We remain quite positive on Reliance, including Jio.”
“We believe the growth momentum in Jio Platforms will continue through both wireless and non-wireless businesses, along with market share and revenue gains. Its AI, energy and core businesses, combined with attractive valuations and a future-focused strategy, make the risk-reward favourable. For investors who are not invested in Reliance, it is a no-brainer. They could see 20-25% returns over the next year. The wait for Reliance investors is likely to be worth it,” he added.
Small banks continue to attract interest
Shah believes the banking sector is entering a new phase, where smaller lenders continue to benefit from improving fundamentals and attractive valuations, even as larger banks remain well positioned.He noted that several smaller banks have witnessed renewed investor interest following strategic investments and capital-raising initiatives.”If you look at the last year, especially the last six months, large banks have performed very well, whether PSU or private. But smaller banks like RBL have rallied strongly after preferential allotments. Federal Bank also performed well after Blackstone’s investment. Smaller banks with these themes have done well. Going forward, while larger banks may benefit the most from decade-high credit growth, small and mid-sized banks should also continue to perform well, and valuations remain reasonable,” he said.When asked about preferred names, Shah highlighted two stocks.
“RBL is one of the banks. AU has also delivered strong growth. I believe both AU and RBL should do well over the next year.”
Remain underweight on IT despite attractive valuationsWhile valuations in the IT sector have become significantly cheaper after a prolonged correction, Shah believes earnings growth remains weak and investors may find better opportunities elsewhere.
He expects large IT companies to continue facing pressure despite limited downside from current levels.
“After Accenture’s numbers, we believe earnings for large-cap IT companies will remain soft this quarter as well. Over the last two years, IT stocks have corrected sharply, and valuations have become attractive. Large companies are growing at around 3%, offering dividend yields of nearly 4% and trading at about 11-12 times earnings. That limits further downside, but it does not necessarily make them attractive investment opportunities. The sector is likely to remain under pressure. A couple of mid-cap IT names may outperform, but overall we prefer to remain underweight because better opportunities exist in other sectors.”
Financials remain the preferred sectorAccording to Shah, recent policy measures have strengthened the outlook for the financial sector, with banks and NBFCs both likely to benefit from improving liquidity and investor sentiment.
He continues to favour large private banks while also maintaining a constructive outlook on vehicle finance, housing finance and gold finance companies.
“The entire financial sector looks set for a re-rating following the RBI’s FCNR deposit announcement and tax cuts for FIIs. Large private banks that have underperformed offer significant value. We like HDFC Bank and ICICI Bank among private lenders and SBI among PSU banks. NBFCs should also perform well. We remain positive on vehicle finance, housing finance and gold finance companies. The entire banking and NBFC space continues to look attractive,” he added.
No clear view on railway stocksAlthough railway companies continue to receive large order inflows, Shah refrained from offering stock-specific views because his firm does not actively cover the sector.
He, however, expressed confidence that the government would continue taking measures to support economic growth despite concerns over fiscal management.
“The government remains focused on managing the fiscal deficit while supporting the economy. We have seen policy measures whenever required over the past few years. However, we do not have specific coverage on railway stocks, so we are unable to comment on them,” he said.
Sun Pharma’s long-term strategy remains intactShah described Sun Pharma’s latest acquisition as relatively small in the context of the company’s overall business and said it does not materially alter its long-term strategy.
He continues to favour the pharmaceutical major for its consistent growth profile.
“Sun has been very active on acquisitions, including larger deals in the US, followed by this smaller acquisition. Given Sun’s size, this is not a major transaction. Looking at the company’s execution over the last four years, we continue to prefer the stock. We expect around 12% top-line growth next year, and it remains a good addition to portfolios,” he said.
Defence remains a structural growth storyDespite the strong rally in defence stocks over the past few years, Shah believes the sector continues to enjoy favourable long-term tailwinds driven by sustained government spending and geopolitical developments.
Among the defence names, he prefers Bharat Electronics and Hindustan Aeronautics.
“Defence stocks have performed very well over the last two to two-and-a-half years, and the sector continues to remain in focus. Many investors are still under-invested, and allocations are gradually increasing. Given geopolitical tensions, defence spending is likely to remain strong. Larger companies have delivered double-digit growth over the past two years, which is reflected in stock prices. We continue to remain positive on BEL and HAL, which are our preferred picks in the sector,” he said.
