Speaking to ET Now, Sabharwal noted that while frontline indices hit record highs earlier, participation hasn’t been broad-based. Against this backdrop, he is adding exposure to steady consumer names and a niche play in entertainment.
“We have also been buying some of these other consumption companies, like typical FMCG ones, so like Dabur, Godrej Consumer in small proportions,” he said. On the discretionary front, he highlighted Wonderla Holidays, which recently opened a new amusement park and is trading near its 52-week lows. According to him, “many of these stocks have no interest from investors right now, so that gives an opportunity to accumulate cheaper.”
Rate Cut Debate Builds Ahead of MPC
With policymakers set to meet this week, rate-sensitive sectors are also in focus. While the consensus expectation is still for a 25-basis-point cut, fresh inflation data has muddied predictions. Sabharwal believes the data strongly favours easing. “If they look at inflation only, we are actually in deflation if you remove gold and silver out of the CPI, so they should be cutting rates,” he explained. However, he said external commentary around the rupee may complicate the central bank’s call: “There are a lot of armchair economists… who are advising them that it impacts the value of the rupee.”
He added that the RBI may ultimately choose caution: “The jury is still out whether they will cut or not because RBI tends to play conservative.”
Rupee Stability Could Return with US Deal
The rupee’s nearly 5% depreciation this year remains a key concern for foreign investors, but Sabharwal believes a potential US trade deal could stabilise the currency.
He cautions against expecting a sharp reversal: “The same amount it will not and it should not because we do not need a strong currency because we are a trade deficit country.” However, he sees room for a stable 2025: “Next year could be a year where if the trade deal actually plays out we have no depreciation.”
This uncertainty, he said, is among the reasons foreign portfolio flows have been restrained. “India has no AI plays and then many of these countries have AI plays… Once the taxation on capital gains got increased, we saw that the big outflow started from then only,” he pointed out, adding that flows into markets like South Korea have been unusually strong due to reforms and emerging tech themes.
Defence Stocks Remain in Favour—But Valuations Stretch
Defence has been one of the year’s strongest themes, and Sabharwal remains constructive, though valuation comfort varies across sub-segments.
“So, we own BEL for a long time because I believe that is the most credible player,” he said, citing its execution record and leadership in missile programmes alongside Bharat Dynamics. He has also selectively participated through private-sector names like Bharat Forge.
Shipyard stocks, however, may need time to cool off from their steep valuations. With many trading above 50x earnings, Sabharwal believes “mostly 30 odd times should be a reasonable valuation,” which could be achieved either through earnings growth or price correction.
Hotel Stocks in Their Next Growth Phase
Among consumption themes, the hotel space continues to stand out for him—though with caveats.
He clarified that “Mahindra Holidays I never liked because they are not consumer centric,” pointing to customer experience issues and the fading appeal of timeshare models. Instead, he prefers Indian Hotels and Lemon Tree, both of which he believes are positioned well in a demand-heavy cycle. Indian Hotels, in particular, he said, has undergone a “phenomenal” transformation under current leadership.
On ultra-premium chains, he remains open but cautious. “Even ITC Hotels should do well. Post demerger there is greater focus,” he said, adding that he has not yet evaluated some of the other luxury names in detail.
