Daily Voice: Equirus' Sahil Shah believes these sectors appear more reasonable in valuation

Sahil Shah is the Managing Director and Chief Investment Officer at Equirus

Given that most of the themes have played out and trailing multiples have been at 60-80x, sectors like financials, chemicals and IT stocks appear more reasonable in valuation, said Sahil Shah, Managing Director and Chief Investment Officer at Equirus in an interview to Moneycontrol.

According to him, competitive landscape has worsened for the paint sector. "We are at the start of the competitive dynamics becoming worse and hence would be cautious about this segment from medium term standpoint," said Shah who has more than 17 years of experience in the financial industry.

Do you think the opportunity is large in defence sector, but stocks are not still attractive  despite recent correction?

Spending in defence and more importantly indigenisation in defence along with exports offers a lucrative opportunity. Lots of stocks in defence sector have corrected by 30-40 percent, but yet they continue to remain expensive. Orderbooks which were growing at slow pace 3-4 years back, have multiplied for lot of defence companies. Now execution becomes important and typically that were challenges happen especially when projects are long term in nature. Stocks have run-up based on orderbook growth and future potential of growth, but now with high valuations and execution challenges makes risk-reward unfavourable.

Do you see some signs of overvaluation in solar and solar ancillary segments?

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Even after correction that we have seen from the peak, stocks here continue to remain over-valued. Opportunity size for wind and solar is huge and current valuations capture this but not the execution risk.

Do you foresee benchmark indices ending the calendar year with around a 10 percent gain, even after the significant correction?

Some part of excesses which were there have been cleared in the recent 10 percent fall at index level. Stocks have corrected even more and some stocks which were part of the themes mentioned above have even corrected. Given that most of the themes have played out and trailing multiples have been at 60-80x, sectors like financials, chemicals, IT stocks appear more reasonable.

Do you still see valuations concerns in equity markets.

Though there has been 10 percent correction, at broader level markets are still in expensive zone especially in the context of the growth we have seen in H1FY25.

Are you concerned about returns on investment and margins in the paint sector, especially with the entry of new competitors?

Competitive landscape has worsened for the paint sector. The market leader had witnessed one of the worst volume decline and gross margin erosion in Q2FY25 which has not been witnessed in past 10 years. We are at the start of the competitive dynamics becoming worse and hence would be cautious about this segment from medium term standpoint.

Do you think the flow of IPOs in the mainboard and SME segments will continue despite corrections?

Market participants have had the best times in IPOs and in stocks in past 5 years. SME index was up in October month when broader markets corrected. A 10 percent correction might not dissuade them from the markets. If there is meaningful fall then flows will get impacted.

Is the China enthusiasm abating? Does it mean the money can stop flowing from India to China?

India market correction was more function of money moving to US and tepid earnings season given the valuations. There might be some re-allocation from India to China. Flows to India will be dependent on attractiveness of India’s corporate earnings in years to come.

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