The recent electoral outcomes across three key states have failed to materially shift the outlook for Indian equity markets, according to market expert Sandip Sabharwal. Speaking to ET Now, he said the results, while politically significant, do not alter the broader market thesis unless they materially impact governance or policy continuity.
“Not really. I think what would have happened is that if BJP had actually ended up losing West Bengal, then it could have had a negative sentiment. But whatever results have come out, I do not think they impact the markets by any significant impact. Obviously, if development activities pick up further in West Bengal, which is a large state, then it is positive for the overall economy. But in the near term I do not think it has much impact,” Sabharwal said.
Banking Sector in Consolidation Phase; Asset Quality Remains Strong
After a sharp run-up earlier in the year, banking stocks have come under pressure over the last two weeks, with both PSU and private lenders witnessing correction.
Sabharwal believes the sector may currently be in a consolidation phase, especially as investors digest evolving regulatory and earnings signals.
“Yes, we could say that because from the PSU banking's perspective, the new ECL norms, etc, something people are concerned about and the recent results which have also come out they have also shown some sort of pressure in terms of their NIM growth, etc,” he noted.
He added that while growth has moderated, the underlying fundamentals remain intact.
“Most of the private sector names reported pretty decent numbers although growth has been somewhat lesser but it is expected to be better this year as inflation also picks up and nominal growth will be much greater and asset quality continues to be well under control,” he said.
He further highlighted that the strong asset quality across banks and encouraging NBFC results continue to support the sector’s medium-term outlook.
Earnings Season: Select Winners Emerging Across Sectors
The ongoing earnings season is revealing strong divergence across sectors, with select companies delivering robust guidance and execution.
Referring to Tata Technologies’ strong commentary, Sabharwal noted improving demand visibility in engineering and R&D-linked segments.
“There are pockets of the economy which are doing well. There are pockets of the export economy which still continue to do well despite all external headwinds. So, this result season is not a negative one per se,” he said.
Auto remains a key bright spot, with strong April sales across OEMs and low inventory levels in the system.
“All the auto companies like April sales data was very-very strong across the board despite all the concerns about geopolitics, etc, and the inventory levels in the system also low, so that creates opportunities,” he added.
He also pointed to BHEL’s strong order inflows and performance revival as a case of a beaten-down stock finding renewed momentum.
Power Sector Strength vs IT Weakness
Sectoral divergence has become more pronounced, with energy stocks outperforming IT in recent weeks.
Sabharwal attributed strength in the energy space to demand conditions and renewable energy momentum, though he remains cautious on utilities as long-term investments.
“I typically do not buy the utilities because they tend to have very low ROEs over the long term… but in the near term because of whatever has been happening on the demand side, we could still see some of these stocks do well,” he said.
While the Nifty Energy index has gained, IT stocks have lagged amid global demand concerns.
Cables & Wires: Strong Growth Meets Valuation Concerns
The wires and cables segment continues to report strong growth, with companies like KEI delivering robust earnings and guidance. However, valuations have become a concern.
Sabharwal noted that while demand strength has been surprising, the structural nature of the business limits long-term multiples.
“These are commodity companies in the guise of sort of branded durable companies. To that extent there is only X amount of valuation they can have,” he said.
He also flagged potential competition risks as large players look to enter the segment, which could gradually reshape industry dynamics.
Dr Lal Move Seen as Liquidity-Driven Overshoot
The sharp 15% rally in Dr Lal PathLabs was also discussed, with Sabharwal suggesting that such moves are often driven by limited liquidity rather than fundamentals alone.
“There are a lot of these companies where strong results tend to create disproportionate movement because the sellers are very less… I would think that it is a good company… but finally people need to realise these are companies which will grow at 10-15%,” he said.
He added that valuation expansion may have already played out in the immediate reaction.
Smallcaps Continue to Outperform on Domestic Flows
Despite volatility, smallcap and midcap indices continue to outperform broader markets, supported by strong domestic participation.
Sabharwal observed that this trend has persisted across cycles, even during downturns.
“So, yes, opportunities continue to remain… midcaps and smallcaps will continue to have opportunities,” he said.
However, he cautioned that stock selection remains critical, with performance likely to remain highly differentiated.
Where Opportunities Are Emerging
Sabharwal highlighted several pockets of opportunity across the market, including:
- Construction and infrastructure-linked companies
- Select NBFCs with strong asset quality and growth visibility
He also noted that export-oriented auto companies could benefit from currency tailwinds and strong global demand trends.
