A tentative rebound in the markets over the past two sessions has offered some relief to investors, but the bigger question remains—can the recovery sustain?
“Keep your fingers crossed. If there was to be a retracement, a turnaround, a correction, it generally starts like this and then it should gather momentum and it should be trying to build on these gains,” said Dipan Mehta, Director, Elixir Equities in an interview to ET Now, while cautioning that multiple external factors still need to align. He added, “But one should keep a lookout for what the news flow is and of course, the oil prices, and if those kind of settle down, the markets can gradually make a recovery.”
Despite the early signs of stability, Mehta underscored the difficulty in calling a definitive market bottom. “I have been in this situation many times and it is very difficult to call when the bottom is formed and when is the right time to buy and when the recovery will take place, it is just that only a few weeks after it is over and done with you will come to know.” He emphasized that a structural shift in market patterns—from lower tops and bottoms to higher ones—would be the real confirmation of a sustained uptrend.
Pharma: Resilience Beyond Regulatory Noise
On Aurobindo Pharma, recent observations flagged under Form 483 are not seen as a major red flag. Mehta noted that large pharmaceutical companies today operate with diversified manufacturing bases, reducing dependence on a single facility.
“So, I do not think it is much of a cause for concern. More Aurobindo is driven more by good quarterly numbers, overall improvement in sentiment for pharma considering that it is a safe bet in such tumultuous times,” he said. He also highlighted tailwinds such as rupee depreciation and emerging opportunities in weight-loss drugs, alongside improved capital allocation discipline.
Auto Sector: Strong Long-Term Story, Near-Term Moderation
While early indicators point to a slowdown in passenger vehicle retail demand, Mehta believes this is largely a base-effect phenomenon rather than a structural issue.
“These kind of volumes are not really sustainable but nonetheless they are great long-term buys,” he said, expressing preference for companies with strong competitive moats and strategic clarity. Among his top picks are Mahindra & Mahindra and Eicher Motors, both of which feature in his model portfolio.
“Eicher Motors… one of the top auto companies, great prospects to generate growth through exports,” he said, adding that the segment faces limited disruption from electric vehicles. He also sees potential in commercial vehicle makers like Ashok Leyland and Tata Motors, anticipating a cyclical upswing.
However, he advised tempering expectations. “Investors should remain overweight auto but they should reduce their return expectations because these kind of growth rates are not sustainable.”
Real Estate: From Speculation to Cash Flow Discipline
A notable shift is underway in the real estate sector, with companies increasingly focusing on cash flows, realizations, and operational transparency.
“They are like truly consumer companies now and less and less like hedge funds,” Mehta observed, highlighting improved disclosures and business quality. He remains structurally positive, pointing to a potential multi-year upcycle, even if the near term sees some cooling.
Among preferred names are DLF and Prestige, particularly for their annuity income streams. He also flagged interest in commercial real estate plays such as WeWork and Awfis, alongside Phoenix Mills, given tight supply dynamics in office spaces.
Varun Beverages: Summer Tailwind in Focus
On Varun Beverages, Mehta remains optimistic, driven largely by weather expectations.
“What is going to drive Varun Beverages is a very-very hot summer,” he said, citing forecasts of a strong El Niño effect. “Last year was a washout because of untimely rains and not so hot summer, so I am very positive from that point of view.”
Beyond seasonal demand, he pointed to growth opportunities in Africa and diversification into new segments, including potential foray into alcohol beverages. Still, he stressed that volume growth remains the key driver.
Banking: Structural Pressures and Shifting Preferences
Mehta struck a cautious note on the banking sector, citing intensifying competition and structural headwinds.
“The banking industry is quickly becoming a red ocean and I am not sure that the industry will be able to sustain these kind of net interest margins in the medium to long term,” he said. He also pointed to rising competition from fintechs and capital markets drawing away savings.
While acknowledging that PSU banks offer value, he prefers NBFCs as a cleaner play on the lending theme. “The way to play the lending business is in my opinion through the NBFCs,” he said, naming Bajaj Finance, L&T Finance, and Cholamandalam as preferred bets.
He added that high banking sector weightage in benchmark indices itself poses a risk. “37% of Nifty’s weightage is in the bank which in itself is a risk factor… it cannot be sustained over a long period of time.”
Metals: Rally Mature, Caution Warranted
Metal stocks have delivered strong gains, aided by rising commodity prices and a weaker rupee. However, Mehta believes the easy money may have already been made.
“I think that we have seen a nice rally in metal companies… but look these companies have rallied significantly,” he said, suggesting that investors already holding positions may stay invested, but fresh entries should be timed carefully.
He warned that elevated prices across aluminium, copper, and steel could limit further upside in the near term. “From a fresh investment perspective I would wait for a down cycle.”
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