7 capital goods and defence stocks which can be bought now: Sandip Sabharwal

“Among the capital goods companies, ABB, Siemens are long-term good stories. Thermax, Praj Industries should do well. VA Tech Wabag has not done well and we have a holding in that but I am bullish on that in the long term,” says Sandip Sabharwal, asksandipsabharwal.com

Thursday was all about the gas stocks. Are you invested in or have any sort of exposure?
I do not have any because I do not see them as very strong sustainable stories because they might have gone up because of some news flow, etc. But longer term, ex of the fact that they could run up, I do not invest in these stocks.

Ridham Desai talked about the theme of self reliance. Is it playing out in the long term? Within that, the defence sector is standing out. Just today, there was an interesting report by Morgan Stanley on HAL. Is this a pocket you would advise investors to bet on?
Yes I do and definitely should. We have discussed this in the past also that among the PSU basket, the only investable basket is the defence stocks because of the kind of investment cycle which is going to be there for the next five to ten years. Defence projects and all the procurements tend to be long term and the sizes are so huge that they can grow very well.

So, stocks like Bharat Electronics, HAL, etc, continue to remain buys on any dips and there are some private sector companies which benefit due to defence capex like Bharat Forge which has made forays and which could do well. Ashok Leyland, Tata Motors are also trying for some business and they are smaller companies in this segment like Astra Microwave.

All these companies broadly should do well and their business share from defence will continue to grow. So pure defence-based companies are largely PSUs. They benefit at first and then the private sector will take their fair share over the longer term.

What do you do now with the private sector bank names?
The bigger returns have come from the private sector banks. They got sold out the most. IDFC First or IndusInd Bank have given strong returns simply because they had become so cheap that when their results surprised on the upside, they made a comeback.

HDFC Bank, despite subpar numbers from HDFC, which is going to merge into it. It has done reasonably well because from Rs 1,300 odd levels, it is at Rs 1,480. So, it is up 12-13% which is a reasonably good return in a short period of time. The other sold out bank Axis Bank has also bounced back. Now all of these are coming to the fair value zone and from here on, returns could moderate.

Are you buying any of the auto names afresh?
Not right now but we continue to hold Maruti and M&M. I still believe that over the next one or two years, they will deliver good returns.

We have seen a fairly decent set of numbers within the capital goods space. Anything that stood out?
Capital goods companies in general have reported good results. Some of them have seen margin pressure but I believe the story remains strong for even all the larger as well as smaller companies.

Pointing out specific instances is tough but overall the theme looks good. Among the capital goods companies, ABB, Siemens are long-term good stories. Thermax, Praj Industries should do well. VA Tech Wabag has not done well and we have a holding in that but I am bullish on that in the long term.

What are you making of this acute resilience from within the IT pack? Barring that week when TCS came out with its earnings for a few sporadic days here and there, IT has been fairly resilient?
That has largely been backed by the rally which started in the Nasdaq around that level. Nasdaq by itself has rallied over 10% from the bottom and these stocks have a great reflection of that on the performance. The key for us is to see whether it is sustainable, whether the fundamentals are going to remain the same or not.

Among all the sectors which are there, I would prefer domestic sectors at this stage and not global because it is the global sectors where there is potential slowdown or recession could come up. I would be cautious on IT, I would think that this rally should be by people to exit or reduce their positions. Many might not want to fully exit but you should reduce IT holdings because in the last rally too, many people got into too many midcap IT companies. The portfolios are full of technology stocks for most of the investors and they should trim it down.