“Now is the time to actually pick up and buy the beaten down consumption names rather than try to sell them on a bad result because this quarter bad results could potentially be the worst quarter of bad results,” said Sabharwal.
He explained that the September quarter slowdown in sales, particularly for companies like Bata and Raymond, stemmed from the deferment of purchases due to GST rate cuts. “There is a lot of deferment of purchases especially by the channel because of the GST rate cut. Any supplies which happened prior to 22nd of September would have had to pay a higher GST,” he noted.
Despite short-term hiccups, Sabharwal expects a strong revival in consumption over the next two years, led by both durable and non-durable categories. “On ground reports indicate that demand pickup has been really strong post the GST rate cuts and that will be reflected in the numbers of companies going forward,” he said.
Housing Finance: “Crowded Segment, Margins Under Pressure”
Turning to PNB Housing Finance, which recently flagged challenges in its affordable housing portfolio, Sabharwal was cautious.“I typically do not buy pure housing finance companies because in my view that it is a very crowded segment… many of these specific housing finance companies are under more pressure to disburse by taking potentially riskier loans,” he remarked.He emphasized that the stress seems to be company-specific rather than systemic, pointing out that “none of the large banks with big housing portfolios have indicated any such kind of stress.”
Autos Enter a New Growth Cycle
Sabharwal believes the auto sector has just entered a long-term upcycle after years of muted growth. “Auto has just started a longer-term growth cycle in my view,” he said, revealing that his portfolios currently include Mahindra & Mahindra, Maruti, and Bajaj Auto.
“Across the board auto companies should do well. On the two-wheeler side, the ground reports also indicate that the revival is pretty strong,” he added.
He also expects strong momentum in consumer durables and non-durables, calling them “very strongly under-owned” by institutional investors. “As the revival cycle starts, we will see people start to allocate and we should see a revival in these segments also,” he observed.
Tyre and Ancillary Plays: Selective Approach Needed
On auto ancillaries, Sabharwal maintained a selective approach. “In this space we currently own Apollo Tyres… most of these tyre companies do not have much US exposure and input prices are subdued,” he said.
The GST rate cut from 28% to 18% is a “significant positive” for the replacement market, he added, noting that replacement demand offers higher margins. However, he cautioned investors about companies with high U.S. exposure.
“From this quarter onwards, unless the tariff issue gets resolved, we will start seeing the impact. So, it is not across the board story for auto ancillaries, we have to pick and choose.”
OMCs: Cheap but Policy Risks Remain
Speaking on oil marketing companies (OMCs) like IOCL, Sabharwal said profitability has held up due to stable fuel prices and the absence of election-related cuts. “There has been no fuel cuts, so that helps these companies maintain their profitability,” he said.
However, he remains cautious about government interference. “There could be government intervention at any point of time with regards to fuel prices, etc., and that is the reason I personally do not buy,” he stated, though he acknowledged that “at these prices these stocks are cheap.”
