5 stocks that will do well in auto space: Sandip Sabharwal

“Capital goods as a sector should do well in the next two-three years because capital expenditure in India is reviving after almost a decade,” says Sandip Sabharwal, asksandipsabharwal.com

How are you maneuvering through this volatility in the market of late?
Market rallies have to be used to exit potentially underperforming sectors and get into which one things will outperform. To that extent, exiting out of technology and commodity kind of sectors wherever someone has an exposure and getting more into capital goods, auto, auto ancillaries and some other reopening trades which might have corrected.

But overall, markets do not have a significant upside from the current levels. We might actually enter into a very wide range in which market trades over the next few months and few quarters because market valuations are much higher than historical valuations at a time when interest rates are going up and that typically is not a good combination for significant market upsides. So markets have become more and more selective going forward.

The kind of capex announcements that we have been seeing from some of the big conglomerates is giving some conviction to capital goods as a theme. Would you wait for some more green signals or buy signals in this case or are you already invested in capital goods?
We do not need signals because enough signals have been coming. Capital goods as a sector should do well in the next two-three years because capital expenditure in India is reviving after almost a decade. Many companies are now expanding and chemicals, pharmaceuticals and cement companies have announced huge capexes. Some steel companies are also expanding.

There are a lot of investments happening in the water, renewable resources sector also. This theme will play out over the next two-three years. Now there will be periods of time when these stocks will run up too much too fast as we have seen in Siemens, ABB and also Thermax after the recent run up.

So valuations look slightly prohibitive now. We need to wait for those who do not have to wait it out. In weak markets you might get corrections in these stocks and at that time you buy.

You are not very positive when it comes to the PSU banking space but a lot of these small banks are making quite a bit of a move right from Central Bank, IDBI Bank, City Union Bank, Indian Bank to Equitas Small Finance Bank and also RBL Bank. Is there any name that you would like to flag off in this space?
I would like to flag off all of them for long term investors not to buy into these stocks.

None of them at all?
Among the smaller banks and in the private sector, the only bank which has actually shown some mettle and improved performance across all metrics is IDFC First Bank. It is a also a bank which was beaten down significantly but we have seen that it has gone up from around Rs 28- 30 to Rs 50 now in a very short period of time. So to that extent there is no opportunity there also at this stage. But on any deep correction in the Bank Nifty, if that bank comes down, I would be keen on that.

What about the big boy Reliance? It is in focus ahead of its AGM on Monday. The Street is expecting a lot at when it comes to the entire 5G space. What are your expectations?
People have several expectations people from the AGM; one is that there could be some demerger etc which I do not think is going to happen. I think the new generation has just taken over many of the companies. I do not think they will separate out of Reliance in any way.

The second is 5G. I think the AGM expectations are always high for Reliance but typically nothing much comes out. I would think it would go the same way.

What is your outlook when it comes to autos and auto ancillaries?
I would agree that auto, auto ancillaries have opportunities. The companies one chooses might be different.I would think that Maruti, M&M are very well placed for the next one or two years and to that extent, they will do well.

The CV cycle is going through slight sluggishness and that is something we need to watch. After that plays out, maybe Ashok Leyland could give opportunities. In auto ancillaries, I like the larger ones like Apollo Tyres and Bharat Forge.