EMS Valuations, Oil Plays, and Paytm: Sabharwal Takes a Cautious Approach Ahead of the Budget
As the market gears up for the upcoming Union Budget, investor sentiments are mixed, particularly regarding electronics manufacturing services (EMS), oil and gas stocks, and select fintech companies. Market expert Sandip Sabharwal’s recent insights reveal a selective and valuation-conscious mindset ahead of the budget, highlighting particular concerns about high-multiple EMS stocks, along with a tactical perspective on oil plays and a cautious outlook on fintech profitability.
EMS Valuations Under Scrutiny
– Sabharwal expressed skepticism regarding significant budget-driven boosts for the EMS sector, noting that while some recent earnings reports met expectations, the sustainability of this growth is questionable.
– He remarked, “I do not think the Budget can aid the growth of these companies in any way. They have received sufficient PLI benefits, and now they must rely on their own merits.”
– Current market valuations for high-multiple EMS companies like Dixon Technologies raise eyebrows, especially given concerns over earnings quality and the lack of real growth.
– Dixon has lowered its mobile phone production guidance from 40–45 million units to 30–35 million, highlighting weak Q3 sales. This adjustment intensifies concerns about valuation stability in the absence of sustainable growth.
Tactical View on Oil Plays
– Sabharwal highlighted the recent uptick in crude prices, which has positively influenced stocks like ONGC, particularly after a period of underperformance despite their low valuations.
– We had taken a position in ONGC several months back, but the stock was stagnant,” he shared. “Its current performance reflects shifting expectations about crude prices.”
– The trajectory of crude prices, heavily tied to geopolitical developments (like the Iran situation), remains unpredictable. However, Sabharwal sees potential for ONGC’s stock to reach levels around 300-320, contingent on crude price movements.
– He cautioned that ONGC is primarily a commodity price-driven stock and lacks production efficiency, necessitating a careful approach to investment in the oil sector.
Cautious Outlook on Paytm
– Despite marginally better-than-expected profitability figures, Sabharwal remains wary of Paytm’s future, citing significant structural challenges.
– “They’re likely to face pressure from payouts, including the removal of UPI benefits,” he noted, emphasizing that most of their profitability stems from financial product sales, a sector with typically low price-to-earnings ratios.
– With target prices hovering around 1700–1800, he expressed skepticism regarding the sustainability of such forecasts, suggesting that investors should temper expectations.
Conclusion
Sabharwal’s evaluations underscore a careful and discerning strategy as the market anticipates the Union Budget. The spotlight on EMS valuations reflects a lack of enthusiasm for high-multiple stocks, while his advice for oil plays suggests a more tactical approach. Lastly, his guarded outlook on fintech profitability, particularly for Paytm, signifies an imperative for investors to remain prudent amid an evolving financial landscape.