Addressing concerns on the defence sector, Gupta acknowledged that while valuations are no longer stretched, investors need to be mindful of execution challenges.
“On the defence pack, the valuations have started to kind of look attractive. There are though question marks on the delivery timelines and really order book to revenue conversion that some of these companies are being able to deliver,” he said.
He further dismissed concerns over valuations, stating that defence stocks are fairly priced relative to the broader market multiples.
“I do not think valuations really are a challenge, compared to the opportunity that is there and relative to where the rest of the market multiples are, I do not think necessarily defence multiples are the issue,” Gupta noted.
However, he stressed that investor confidence will hinge on companies demonstrating their ability to convert strong order books into revenue.”We need to be more confident about order book to revenue conversion that some of these companies are going to be able to deliver. And if we get that confidence, there is certainly a scope for a bounce back if not in the entire pack, but at least in select names,” he added.When asked about the PSU pack, Gupta highlighted utilities as the most attractive space, given their earnings stability and recent valuation correction.
“So, at this point of time we are most excited about the PSUs in the utilities space, there the confidence on earnings and earnings stability is maximum and valuations, as you mentioned, have become quite attractive, so they are now down to about 11-12 times earnings multiple from 18 to 20 times earnings multiple,” he explained.
On the other hand, PSU banks have also seen a significant valuation decline, but Gupta remains cautious due to market share loss on the deposit side. “We have seen many of the other PSUs, including PSU banks, their multiples have also come down back to about one-time book, so they look okay but again they have started to lose some market share on the deposit side,” he pointed out.
However, it should be noted that despite the attractive valuations, Gupta still prefers private banks over PSU banks, citing their stronger market positioning.
“And again, because the private bank valuations are also quite attractive at this point of time, we continue to prefer private banks over PSUs, but PSU bank multiples are also quite good,” he concluded.
Also read: ETMarkets Smart Talk | Stock picking amid market chaos: How to avoid value traps during corrections, Kashyap Javeri decodes
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
