We have discussed autos as well as homes, but what others could see the trickle-down effect of a consumption fillip if it were to come in given that the combination looks picture-perfect right now?
Sandip Sabharwal: Lower interest rates like these directly benefit infrastructure, construction companies, and I believe that many of those stocks are still significantly below 52-week highs, so that is one sector which definitely benefits due to easing liquidity and lower interest rates because their clients can fund more projects, their balance sheets which have debt, the rates get reduced, so that is one sector. And secondly, there will definitely be a revival in consumer durable demand as we go into the festival season this time because it has been subdued for two-three years. And with this kind of combination, there has to be a revival. So, all the consumer durable names could see an uptick going forward.
Also give us some sense that how do you see the latest news flow on MCX and how can this actually impact the fundamentals of the company as the company announces the launch of equity derivatives where they will generate contracts to generators, distribution companies, and large customers to hedge against the price volatility and manage price risk by enhancing the efficiency in the power market. Give us some sense that how will it matter to MCX since the stock is already at an all-time high?
Sandip Sabharwal: So, the exchanges have been moving up steadily across the board as the unlisted price of the NSE stock also keeps on moving up so that is in line with that. Valuations obviously are excessive, but incrementally, it is a positive move because it is a good segment to be in. Electricity derivatives will only grow going forward as different sources of supply come in with varied supply intervals like solar will be available only during the day. Then, there will be solar storage also coming up. So, I think that will impact how it behaves. So, unlike thermal, which is a regular supply, all other sources of renewable energy have periodicity, so that will make the overall electricity trading grow. So, whoever gets into this segment has to be a beneficiary. Initial contribution to the overall profitability, etc, might be low, but it is a segment which could grow.
So much news flow when it comes to the defence pack. Even over the weekend, you have got news that BEL has inked their MOU with Tata Electronics. Now, they are looking to explore opportunities in area of semiconductors. There was also news on Garden Reach. They have signed an MOU with Sweden, with Denmark for now marine systems and cruise segment. But do you think that defence as a sector could perhaps be priced to perfection right now or do you think there is still value on the table?
Sandip Sabharwal: I think money flow will continue into this sector because as an overall part of the market, this is still a small market. But like you rightly said, many companies have become very excessively valued, especially many of the shipyard companies or for that matter many of the other defence companies where some of these companies also have guided for just 7-10% growth and then still the valuation has become 80-90 times and on the private sector side, the frenzy, whoever is related to defence is even much more greater.
So, the valuation on the private sector defence companies have gone totally, completely out of sync with what the actual valuation should be. So, people need to be careful. They need to time their entries but participate in the defence theme but at the right price because we have seen that in the past if you bought in on the wrong price, sometimes these stocks could correct as much as 50% also if there is correction.
Also help us with your take on GRSE because yes, some of these counters have been doing well, but any take by you that how do you see the growth for the company as FY26 is expected to be the peak revenue year while FY27 is potentially continue to see a strong momentum?
Sandip Sabharwal: So, while evaluating any stock, you have to understand what is built in and what is not built into the price. So, many of these shipyard companies have run way ahead of fundamentals, so people need to be careful at what price they are buying. Directionally, the story for shipyards is strong, but then we cannot buy them at 80-90 PE or any sort of absurd price earning ratio. So, we need to be careful at what price we buy.
What do you think the texture of the market is going to be here? We were just discussing the other day that mutual funds are still sitting on a whole pile of cash. The scenario right now is perfect for all that money to pour in right now, especially because of what is happening in the developed world as well. Do you think it is going to be more of an across the board move, across sectors that we will see a move up or do you think it is going to be this versus that kind of move and then what do you think is going to be the composition of where you see leadership and where you see underperformance?
Sandip Sabharwal: I think it will be across the board because initially the direct beneficiaries of the rate cut cycle will move up along with the fancied sectors and then, there will be a catch up of those sectors which have not participated also because there will be a left out feeling among many investors. So, it will be across the board. Some sectors which are direct beneficiaries of rate cut cycle, policy changes will benefit immediately and for the others, it will be more of trickle down.
