Markets to go much higher than current levels over next few months: Sandip Sabharwal

"For someone who is looking to buy afresh, I would still think that allocations to IT should be moderate only and less than the index weightages because the stories across other domestic sectors are much stronger," says Sandip Sabharwal, asksandipsabharwal.com.

Even though you were sideways for the better part of last week, we managed to scale to that 18400 print and it seems like it is going to be 18500 this morning already and maybe new high soon.
That was always the premise that we will move to new highs as the interest rate cycle peaked out and the performance of the Indian economy actually held up versus what is happening all around the world.

So I believe that we are still well positioned. However, the only thing is that for people who are waiting for the markets to fall further in March, the markets are more than 10% already.

So once such a move happens then who have a very short term view they should be a bit cautious because markets can give jerky correction anytime but directionally I am still positive and bullish. I believe that over the next few months, by next year, we will see markets much higher than current levels.

Let us discuss IT. I mean, markets are at an all-time high or nearing an all-time high. The gap between where IT was versus where IT now is when markets are at an all-time high, flows are coming do you think one should not continue to ignore it?
It depends on how many stocks you want to buy, what is your perspective and what kind of holdings you have. So for someone who is a pure large-cap investor and they hold IT and then they think that they should be exiting now, maybe it would not be a time to exit now because of the fact that it has underperformed so much.

For someone who is looking to buy afresh, I would still think that allocations to IT should be moderate only and less than the index weightages because the stories across other domestic sectors are much stronger.

Now, one can argue that a part of that is built into the stock prices, but I think this entire theory of worst is over, best is over and trying to juggle portfolios based on that is not a strategy which works very well. So we have to ride the winners till a point of time valuations become very high and the gap becomes excessive, which I do not think has happened still.

Where in this market would you go contra if at all?
I think contrarian approach does not mean that you go and buy companies which you know are fundamentally not going to do well. Contrarian approach is more about buying into companies where the market and the investors hold much lesser than what they should be holding relative to what the growth of the company could be.

So I think that is how I would like to approach it. I have been hearing of buy IT, Pharma for the last so many years because there are a set of people who just think that because they have not performed they are contrarian.
So it is very true that when the market moves up, it moves to a new high etc. all the stocks will perform.
But then we have to buy stocks which we think can have durable growth with earnings growth over the next two-three years.

So in a nutshell I cannot say that we see that across the board in the pharma sector. Sun Pharma is the only pharma stock we own because they have been doing well over the years and much better than the rest of the pharma sector and we continue to hold the stock.

Lupin saw first signs of turnaround this time so that can be a contrarian bet ex of that I do not see much of story in pharma.

NCC could be a special situation but I was looking at numbers from Ahluwalia, a company which you track. Do you think there is still some more juice left in some of these pure vanilla construction companies?
Companies which are focused on their balance sheet, which are focused only on the EP side I will not go and taken up BOT and HAM projects which we have seen in the past have hurt companies.

Results of both NCC and Ahluwalia are exceptional. NCC in fact, the PBT grew from Rs 100 crores to Rs 300 crores. Last year same quarter there was exceptional profit if you remove that the PAT and PBT growth in fact is almost 200% for NCC.

Order flow has been very strong and they have been actually able to reduce debt while growing so much.
So I think these are exceptional set of numbers. I believe the market still under appreciates what is happening internally in the company and the way they have been executing, I would think they will do well.

Ahluwalia again was exceptional set. The order book is now nearly Rs 10000 crores vis-à-vis around Rs 4000-5000crores which was there last year.

And next couple of years they will not only grow rapidly but have higher margins and improve profitability and relative to growth prospects I think both these stocks are still cheap.