Business
Why Deepak Shenoy remains cautious on tobacco, QSR valuations
On the subject of large conglomerates and asset monetisation, Shenoy refrained from commenting on specific companies but laid out a broader framework for how such entities typically unlock shareholder value over time.
“So, I cannot specifically talk about individual companies unfortunately because our compliance would not allow us, but in general large conglomerates when they start looking at multiple businesses, the problem becomes are you a holding company or are you an operating company that has multiple perhaps non-connected investments as well,” he said.
He pointed out that as businesses scale independently, structural clarity becomes critical. “We have seen some of these investments actually divest by splitting their company shares by…, I mean in a sense demerging from the larger entities, and I expect that to happen, that is in the best interest of shareholders,” Shenoy said, adding that cross-holdings often dilute transparency. “Creating large monolithic entities is not useful,” he noted, arguing that once newer businesses mature, “you should have it independently listed and the sum of the parts here will be greater than the whole.”
Turning to the tobacco sector, Shenoy struck a cautious tone following the excise duty announcement. He highlighted long-term structural challenges facing cigarette makers. “First people have reduced smoking in general. The overall numbers and volumes over a long period of time have grown lesser and lesser every year and they will degrow as time goes by,” he said, pointing to changing consumer behaviour and alternatives such as vapes.
He also flagged policy risks and margin pressures. “The ability for the government to extract taxes out of just cigarettes… I think the idea is that the tax revenue from this is going to dwindle and the companies that are solely focused on cigarettes as a revenue source should consider diversifying into other sources,” Shenoy said. Over time, he expects volumes and profitability to remain under pressure, making diversification into FMCG, hospitality or other businesses increasingly necessary.
On the quick service restaurant (QSR) space, Shenoy suggested that the definition of the category itself is evolving. “What was a quick service restaurant is now quick service offering through the restaurants themselves,” he said, noting that delivery platforms have blurred traditional boundaries. While acknowledging long-term opportunity, he warned against aggressive valuations. “I feel at this point most of the QSR listed players just tend to be a little more expensive,” he said, adding that rising competition could weigh on returns.The outlook for electronics manufacturing and industrials, however, appeared far more constructive. Shenoy said recent policy measures and lower interest rates are combining to support capital expenditure. “There are two things over this, the PLI, the incentives that the government is giving and secondly lower interest rates after RBI cut rates in December,” he said. He described electronics manufacturing as a “massive, massive space going ahead,” though cautioned that it remains a long-gestation, decade-long journey.
In the power sector, Shenoy said the investment cycle is gradually shifting from generation constraints to transmission and distribution upgrades. While nuclear energy remains a long-term story, he believes near-term opportunities lie elsewhere. “I like the distribution theme a lot more right now,” he said, pointing to last-mile transmission, metering and equipment manufacturers as key beneficiaries in the current phase.
Within financials, Shenoy expects public sector banks to outperform in the near term. “PSU banks have probably done fairly well,” he said, citing stable margins, a broad deposit franchise and potential treasury gains. Smaller private sector banks could also deliver positive surprises, while larger private lenders may continue to see muted performance until overall credit growth improves meaningfully.
On autos, Shenoy attributed recent strength to policy support and affordability gains. “From an auto sector perspective my views largely stem from the cut in GST that happened in September,” he said, adding that lower interest rates will further support demand. His preference order remains clear: “four-wheeler, two-wheeler, and then commercial vehicles,” with tractors hinging largely on monsoon conditions.
Overall, Shenoy’s commentary underscored a market that is no longer driven by a single narrative. Instead, structural shifts, policy incentives and sector-specific fundamentals are increasingly shaping investment outcomes, reinforcing the need for selective, long-term positioning rather than broad-based exuberance.
