“Credit growth drives the economy. What we are seeing now – double-digit growth for most major banks – is clearly indicative of an economic recovery,” he said.
Axis and Kotak stand out; valuations still reasonable
Among banks that have already reported Q3 updates, Sabharwal said Axis Bank and Kotak Mahindra Bank posted strong numbers, while HDFC Bank posted stable but unspectacular growth.
“Axis looks attractive even from a valuation perspective,” noted Sabharwal, adding that figures from ICICI Bank are still awaited.
He also highlighted that system-wide gross NPAs have fallen to multi-year lows, strengthening investment opportunities for major banks.
Preference is still given to large banks over smaller lenders
Despite a visible recovery in credit growth among small finance banks, Sabharwal said he prefers to stay with large banks due to the historical asset quality risks associated with aggressive lending by smaller institutions. “When smaller institutions grow too fast, NPAs tend to surface a few years later,” he warned.His preference is for bank investments such as ICICI Bank, Axis Bank, State Bank of India and IDFC First Bank, which he believes will yield benefits when interest rates fall.
Consumption mixed; Trent’s growth is moderating
On the consumption front, Sabharwal struck a cautious tone, especially on highly valued retail stocks. He said expectations for Trent have risen sharply after years of strong execution, making sustainable growth above 20% difficult.
“The numbers are not bad, but not great either. For new investments, there are better opportunities than Trent at current valuations,” he said, adding that inventory adjustments due to GST changes weighed on the quarter.
Improve FMCG prospects; Dabur, Godrej Consumer could surprise
Among FMCG companies, Marico and Britannia have stood out even during the consumption slowdown, according to Sabharwal.
He believes that stocks like Dabur and Godrej Consumer Products could emerge as dark horses in the next one to two years if demand gradually revives.
ITC is under pressure in the short term following the cigarette excise hike
On ITC, Sabharwal said the sharp hike in excise duty on cigarettes will pose a challenge in the coming years.
“Price increases could hurt volumes, and illicit cigarette inflows are a real risk,” he said, adding that ITC’s non-tobacco FMCG business is yet to reach meaningful profitability scale.
Energy sector: prefer equipment over financiers
While the recent regulatory easing has led to a revival of energy financiers like PFC and REC, Sabharwal remains cautious due to the long-term risks in financing solar projects.
“I prefer transmission, transformer and power equipment companies over pure financiers or generators,” he said.
Cars: Stick with leaders, avoid turnaround bets
In the auto sector, Sabharwal says market leaders continue to outperform, making turnaround bets less attractive.
“Why gamble on uncertainty when companies like Maruti Suzuki and Mahindra & Mahindra are doing so well?” he said.
He remains bullish on Mahindra & Mahindra, calling it one of his longest-standing core positions, while suggesting that commercial vehicles offer better prospects than passenger cars within Tata Motors.
Staples could see a turnaround after years of slowdown
Sabharwal expects a gradual recovery in the staples sector after two to three years of weak demand.
“If consumer demand really picks up, many FMCG stocks could deliver double-digit returns from here,” he said, adding that inflation easing would be a key trigger for sustained improvement.
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