Indian markets witnessed another volatile trading session yesterday, with investors gravitating towards defensive sectors such as pharma and FMCG while selling pressure intensified in PSU banks, realty, and select capital goods counters.
Speaking to ET Now, Aditya Shah, Founder, Hercules Advisors said the market’s nervousness stems largely from the lack of clarity surrounding the ongoing geopolitical tensions in the Middle East.
“So, it is very obvious, the market sees no resolution to the Middle East crisis. US and Iran have been going back and forth and that is why the market is really correcting per se,” Shah said.
He also pointed to concerns around rising fuel prices and their potential impact on domestic consumption trends. According to Shah, recent policy messaging suggests that slowing consumption could become part of the near-term adjustment mechanism for handling inflationary pressure linked to energy costs.
Despite the weak undertone, Shah believes the current correction may eventually throw up long-term opportunities in selected sectors.
“Near-term for the market will be very range bound. Longer term, this correction would be a good opportunity to enter into many sectors,” he said.
Gold Stocks Still Too Expensive, Says Shah
While gold prices have remained elevated amid geopolitical uncertainty, Shah cautioned investors against rushing into gold jewellery stocks at current valuations.
“Absolutely not. The gold stocks continue to remain really very expensive,” he said, dismissing the idea that the recent correction has made the segment attractive.
He argued that persistently high gold prices could hurt volume growth for jewellery companies. Shah also warned that any moderation in gold consumption could put further pressure on businesses already trading at steep valuations.
“Now with the prime minister asking Indian citizens to check gold consumption, obviously if there is a time correction in the gold prices, these companies trading at about 60, 70, 80 times price-to-earnings multiple will continue to really struggle,” he said.
Shah added that he remains negative not only on listed jewellery companies but also on third-party vendors connected to the ecosystem.
“This correction is just the start,” he cautioned, suggesting more downside could emerge if valuations continue to compress.
Cap Goods Under Pressure, But Long-Term View Intact
The capital goods pack also came under pressure after weak earnings commentary from companies such as ABB. Shah believes the broader sector could continue to report softer numbers in the near term due to supply chain disruptions and uncertainty linked to global conflicts.
“So, cap goods, I obviously expect all the cap goods companies also to report the weakest set of numbers,” he said.
He also remarked that even Larsen & Toubro’s earnings were not particularly impressive, though he remains constructive on the sector over a longer horizon. According to Shah, investors should remain selective and valuation-conscious while approaching capital goods stocks.
“I will not want to add any cap good stock which has a multiple higher than 20-25 or max 30,” he said.
Still, Shah maintained that India’s long-term infrastructure and industrial growth story remains intact, making temporary corrections potential accumulation opportunities for patient investors with a three-to-five-year horizon.
Financialization Theme Remains Strong Despite Valuation Concerns
On the theme of financialization of savings, Shah acknowledged that most listed plays in the space currently trade at rich valuations. However, he remains positive on the structural growth story of the mutual fund industry.
He cited companies across asset management and capital market infrastructure as beneficiaries of the long-term shift toward financial assets, although he warned that valuations have become stretched.
“Everything is expensive here,” Shah said.
Referring to the sharp rally in stocks such as Nippon Life India Asset Management, he noted that several counters have already delivered outsized returns in a short span of time.
Still, Shah believes mutual fund businesses remain one of the strongest secular themes in the Indian market.
“Inflows into the mutual fund will continue as time really goes on. So, mutual fund is one of my top picks,” he said.
SBI Correction Could Offer Entry Opportunity
Among banking names, State Bank of India has seen sharp selling pressure in recent sessions, with the stock falling nearly 10% over the last few trading days.
Shah, however, believes the correction may present a staggered buying opportunity for long-term investors.
“I do not think there was any negative surprise in the results,” he said, adding that the increase in slippages appeared manageable considering the bank’s growth trajectory.
According to Shah, SBI continues to remain well-positioned in terms of deposit growth, loan growth, and overall asset quality.
“So, from my perspective, I would start to look at SBI in a staggered manner now,” he said.
