Business
Largecap IT looks safer than midcaps; IndiGo correction offers upside: Sandip Sabharwal
InterGlobe Aviation, a Nifty 50 constituent and India’s largest airline by market share, has corrected nearly 20% from its recent highs. The stock, which commands over 60% of the domestic aviation market, has slipped from around ₹5,000 to close to ₹4,900.
Contextualising the recent developments, ET Now noted that the airline operates in a near-monopolistic environment and asked whether the recent numbers justify continued conviction in the stock.
Responding, Sabharwal said, “The numbers were decent in the context of whatever happened because the disruptions were significant. Then there was a forex impact, followed by the labour code impact, which has affected most companies this quarter. Even after that, they have reported a profit and guided for decent growth despite the kind of restrictions put on them.”
He added that the aviation sector has high entry barriers, making it extremely difficult for new players to meaningfully challenge incumbents. “In all probability, it is very tough for any new airline to come and take capacity. Even for existing ones, it is tough because airlines is not a business where you can just get in. New airlines will not come. Who will come? Initially, you will have to make at least a ₹500–1,000 crore loss before any significant growth happens.”
Sabharwal remains confident that IndiGo will continue to dominate Indian skies for several years, pointing to its strong balance sheet. “Which airline would have nearly ₹40,000 crore of cash on the balance sheet, zero debt, and ₹40,000 crore in cash? They are in a significantly strong financial position.”
According to him, the recent correction has made valuations more reasonable. “Without these disruptions, this was a stock that was not correcting at all. Today, it is down 20%. I think it is reasonably valued. It is not very expensive. Once the overall market stabilises and starts doing better, InterGlobe should be an outperformer.”Shifting focus to the IT sector, ET Now highlighted mixed earnings from midcap IT companies such as Coforge and Cyient, while larger IT firms have delivered relatively stable results. Sabharwal believes largecaps remain better positioned.
“Valuation-wise, largecaps look much more reasonable than midcaps. Results have not been great for many IT companies, but for the first time in a long while, we have seen order signings pick up. That is a positive signal. The currency also helps improve or sustain margins.”
However, he tempered expectations on returns from the sector. “Overall, the sector should be neutral. Specific stocks could do well, but this is not a sector to invest in for 20–30% returns. It is more of a 10–15% return sector now.”
On the ongoing concerns around IIFL and whether the correction presents a buying opportunity, Sabharwal struck a cautious note, especially when it comes to financial stocks.
“In any other sector except financials, I would say that if bad news creates a correction, you should buy. In financials, you should never buy bad news. You never know what is in the balance sheet, what will get disrupted, or whether they will have to pay higher tax or do more write-offs. Never catch a falling knife in financials is my advice.”
Commenting on jewellery stocks, particularly Kalyan Jewellers, which has seen a recent correction despite being considered a strong franchise, Sabharwal expressed scepticism.
“I have always been wary of this counter. Empirical data—if you go to Kalyan Jewellers stores—you rarely see customers, yet they continue to report strong numbers. So, I have been sceptical of the company.”
He also pointed out broader demand concerns across the jewellery sector. “Overall jewellery and silver product demand has completely collapsed after the recent rally. There is demand for gold coins, gold bars and silver bars because people are speculating, but actual consumer demand has collapsed for now. It may revive going forward, but that is another factor weighing on jewellery companies.”
As markets navigate earnings volatility and sector-specific challenges, Sabharwal’s views underline the importance of balance-sheet strength, reasonable valuations and caution in financially sensitive sectors.
