Speaking to ET Now, SBI Cap Securities’ Sunny Aggarwal said the recent sell-off in most large-cap names appears to be driven by fear and assumptions of the worst, rather than deterioration in business fundamentals.
An example is the reaction of companies to the Middle East where investors are causing long-term disruption to projects and economic activity. “There is absolute fear in the stock base that the company will get 25% to 30% exposure in the Middle East, and the market is discounting that 25% to 30% of the total order book that may not be executed in the next 6 to 24 months,” he said.
However, Agarwal believes that the market may face a tougher scenario. If geopolitical tensions subside in the coming months, investors may return to normal assumptions about project execution timelines and business growth.
He noted that the inventory pipeline for some companies remains strong despite the recent volatility. “Looking at the very strong order book of nearly Rs 4.3 trillion and that too nearly 30% is from the private sector, which clearly indicates that even private sector capitalization is picking up,” he said.
With valuations correcting alongside the broader market, the risk reward for long-term investors is starting to improve. “After the correction, now the valuation has even calmed down… We feel the fair value of the business is closer to Rs 4,000-4,200. So any decline now is a good buying opportunity for long-term investors.” Agarwal said.
In the consumer Internet space, too, growing competition and temporary disruptions are weighing on sentiment, but the broader growth story remains. “After the correction, even there we feel the risk-reward is moving in favor. In fact, both these stocks, Eternal and Swiggy, look very attractive because the long-term growth opportunity is very good,” he said. he said. Largely, crude oil remains the key variable for India’s economic outlook. High energy prices can create inflationary pressures throughout the economy if they persist for several months. “If crude oil continues to trade above $90 and $90 to $110 for a long period, three to six months, then it will definitely have an inflationary effect on the value chain, first for the producer and then for the consumer,” Agarwal said.
Still, he noted that India has experienced relatively low inflation over the past year, which could provide some cushion if energy prices remain volatile.
In banking, Agarwal said valuations have also been favorable after the recent adjustment. “After the correction, many private banks are now trading at reasonable prices,” he said. A mix of private and well-diversified public sector banks can help investors navigate the current environment, he added.
As markets digest geopolitical risks and commodity volatility, Agarwal believes that the current phase of panic could gradually give way to better opportunities for investors willing to take a long-term view.
