Speaking to ET Now, Sabharwal said the market’s direction will increasingly depend on developments surrounding global commodities, inflation, and geopolitical tensions in the Middle East.
“Like we were discussing the last time, it is all a question now of the macros because if we look at the company results which have been coming out, they have been decent despite the kind of raw material spike and disruptions we saw in March and many of the companies are indicating steady demand trends in April, May, etc, so that is the critical part,” he said.
Sabharwal pointed out that investors are closely monitoring developments after President Donald Trump’s China visit, especially regarding Iran and the broader Middle East situation.
“Now, the key for all of us to watch post today is once the China trip ends for President Trump and he goes back, what happens at the Iran and how is this entire issue going to get resolved because the main thing which can put a break to the very strong bull market on globally, and in India obviously it has not been there, but whatever stabilisation we are seeing is that the commodity price upswing has to stall and for that we need more clarity on what is happening in the Middle East,” Sabharwal noted.
Despite concerns around inflation, Sabharwal disagreed with the view that earnings growth has disappointed markets. He maintained that corporate India has delivered resilient numbers even amid elevated input costs and supply disruptions.“No, I do not agree that earnings are not growing at the pace at which the market wants. In fact, I would think that the earnings delivery of many of the companies has been pretty decent in the context of what has been happening,” he said.He also highlighted that demand trends remain stable across sectors, based on management commentary and post-results conference calls. According to him, inflationary pressures are more linked to logistics and geopolitical disruptions than structural demand-supply imbalances.
“So, this is more episodical rather than something which is because of high demand-supply gap. So, there is no demand-supply gap per se. It is all logistics, because of logistics the gap is there,” Sabharwal explained.
On crude oil, he argued that global supply remains sufficient under normal circumstances and prices could cool rapidly if geopolitical tensions ease.
“Otherwise, even for crude oil if you see, global supply on a normalised basis is more than the global demand today. So, there is no reason why crude prices will remain so high once things normalise,” he added.
However, he cautioned that the duration of the conflict remains uncertain.
“Now, we are 75 days into the conflict toss tail whichever way you talk about it, but the resolution has not happened, so that is the key factor to watch,” he said.
Sabharwal also observed that while current earnings trends provide downside protection to markets, stronger upside momentum would require greater global clarity.
Discussing the Adani group, Sabharwal indicated limited interest in the conglomerate from an investment perspective.
“Not really. I do not invest largely into the group,” he said when asked whether any Adani stocks looked attractive after the recent rebound.
On oil marketing companies (OMCs), Sabharwal remained cautious despite the recent fuel price adjustments that could help reduce near-term losses.
“The main issue is that it is too much control by the government. So, how do investors play a business where there is no freedom at all with the companies themselves,” he said.
He added that government intervention limits long-term valuation potential for such businesses.
“It is all about the fact that they are completely controlled and to that extent it is very difficult for investors to take long-term bets in these companies or these companies to get higher valuations,” Sabharwal remarked.
The discussion also turned to the automobile sector after strong earnings from Tata Motors and improving profitability trends despite commodity cost pressures.
Sabharwal acknowledged that automakers continue to face margin stress from rising raw material prices, though demand remains healthy.
“Yes, you summarised it pretty well, like demand trends are still strong, raw material price pressures are severe and to that extent there will be near-term margin impact and that is already reflected in the stock prices,” he said.
He noted that several auto stocks could have traded significantly higher based on earnings performance alone, but concerns over commodity inflation have kept valuations under pressure.
“If demand trends hold up, then we could actually see the sector do much better over the next year or so,” he added.
On JSW Steel, Sabharwal said the sector has become more difficult to assess after the sharp rally in metal stocks.
“So, steel is a tough sector to call now after the sharp runup because of the fact that much of the profit spike also depends on the continuation of safeguard duties,” he explained.
At the same time, he pointed out that elevated commodity prices can support economic growth by encouraging large-scale capital expenditure from commodity producers.
“Everyone thinks higher commodity prices are bad, but the good part of higher commodity prices is that that leads to commodity companies doing significant capex and large capex is typically done by commodity companies, so that tends to be positive,” Sabharwal said.
He concluded by noting that commodity spikes only become a major threat when they trigger aggressive interest rate hikes and broader inflationary instability.
-1024x683.jpg "Strait Outta Hormuz: Getting the Iran Oil Story Straight")
