FIIs return, earnings lift sentiment ahead of expiry week: Sandip Sabharwal

"The best part about banks is that they have handled the entire tightening cycle very well in terms of managing NPA on their books. So, as the easing cycle plays out and because the book quality remains good, we will see better credit growth although margins get hit in the short term as the rate cycle starts, but they adjust over the longer term," says Sandip Sabharwal, asksandipsabharwal.com.

Let me have your take on the markets because it has been a great rally in the last truncated week that we have seen, the FIIs making a comeback, the earnings especially for the banking majors were actually great and we are looking forward to an all-time high levels coming in for Nifty Bank. How do you read into the Indian markets move right now and do you believe that in the last trading week or the expiry week of this particular series, this uptrend will continue at least in the near term?
Sandip Sabharwal: So, we are seeing somewhat of a decoupling of many markets from the US markets lately where US because of the expected slowdown in economic growth due to the tariff uncertainties, the way the US dollar has been moving, etc, the markets have not been doing well and there is a reset happening globally and India is a part of that.

On top of that in India the macro data continues to be reasonably good, both in terms of inflation expected growth rates for this year and company results right now a majority of large IT companies have reported and some large banks have reported, so bank results like you rightly said have been very encouraging.

The best part about banks is that they have handled the entire tightening cycle very well in terms of managing NPA on their books. So, as the easing cycle plays out and because the book quality remains good, we will see better credit growth although margins get hit in the short term as the rate cycle starts, but they adjust over the longer term.

So, banks are pretty well placed and as the result season plays out, we will see more data points but this quarter result expectations in any case were lower. Overall financial year 25-26 the outlook still remains positive.

Let us talk about then the rest of the markets and the sectors that we have right now at hand, yes the banks are the one that have been outperforming, but apart from banks you have real estate space also that has been a surprise mover of late, seeing extremely good strength in the market. What is your take on the real estate space and is that a domain that you will like to look at right now?
Sandip Sabharwal: The real estate overall I am cautious because we have had a few years of very aggressive growth and now all data points indicate that growth seems to be stalling at least on the residential side and a majority of the business from most of the large real estate companies except of a very few comes from that segment.

So, after this long phase of performance where the real estate sector actually kept on outperforming even if the markets did not do well and many other sectors did not do well, we need to go through a phase of long consolidation.
So, I would think that for this year at least I would be cautious on real estate and only be looking at to buy them on some reasonable corrections.

Before I talk about Infosys, I want to talk about a niche play like Tata Elxsi because those numbers are little alarming. There has been a sharp miss led by, of course, the auto tariff uncertainty and I am just wondering if this is what Tata Elxsi reported, what does it really spell for some of those globally facing auto majors, case in point being Tata Motors?
Sandip Sabharwal: Tata Motors, like IT and Tata Motors correlation is very low, so I would think that Tata Motors it is more about what happens to the US, UK sort of bilateral trade pact and how that plays out and the competitiveness of overseas players vis-à-vis domestic players in the US market because US is a big market.

So, there the impact will continue because the auto tariffs are unlikely to go away. But as far as niche players in it are concerned, your observation is right. So, what will happen is that last couple of years while we saw the largecap IT companies largely underperform, some of the smaller companies with niche plays continue to do much better.

Now, the risk for those companies might be even greater because one client deengagement or one or two project rampups can hurt the relatively midsized IT companies much more than the larger companies who have a much more diversified client base and the valuations of many of those midcap IT companies still are at a premium to let us say Infosys or TCS and much more than Wipro HCL Tech. So, I think that is the segment investors need to be more cautious about.

But traditionally one has seen that IT stocks bottom out before their earnings and if you were to just stack up the last 10 year examples, where do you think it stocks are going to actually bottom out, is the negative already baked in into the price and these are stocks which have already fallen 30% to 35% odd from their 52- week peaks or would you say that it is too early to make a case for them bottoming out, right now perhaps maybe more a case of at least the fall stalling here.
Sandip Sabharwal: So, I would think fall stalling would be a bigger probability especially if the market continues to do well. Now, there are two things here, the macro environment will continue to deteriorate while the management commentaries if you actually hear TCS or Infosys or the other companies still continues to be reasonably positive in the context of the significant macro uncertainties.

So, what will turn out to be true is something we need to see whether the positiveness of these IT companies will actually play out or the macros will hurt them more. So, I would think that by the next quarterly results we will have greater clarity and unless and until something drastically changes on the tariffs front or ebbing of the global issues I do not think that we will see any significant rally in IT stocks at least till the next result season.