EMS sector under pressure, fund manager advises caution on overrated stocks

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At previous close, the Sensex was down -609.68 points (-0.71 percent) at 85,102.69, and the Nifty was down -225.90 points (-0.86 percent) at 25,960.55

The Electronics Manufacturing Services (EMS) theme, which has been a favourite among investors and delivered multi-bagger returns over the last few years, is now facing significant pressure. Despite sharp corrections of up to 40% from their peaks, market expert Parag Thakkar advises maintaining caution and staying away from the space due to what he sees as persisting high valuations.

Speaking with CNBC TV18, Parag Thakkar, Senior Fund Manager at Fort Capital, shared his clear view on the sector. He referenced recent negative developments in specific companies, such as PG Electroplast, where a promoter entity's sale was followed by a guidance cut; and Kaynes Technology, which has faced questions over its balance sheet and cash flows after raising QIP funds at a high valuation.

"My view is very clear. I stay away from companies which are into normal businesses, but just because of the earning momentum, people buy it at 100 PE," Thakkar stated. He emphasised the valuation concern, pointing out that even after a 50% fall, the stock's trailing P/E multiple could remain as high as 65.

While Thakkar acknowledged the government's necessary push to encourage electronics manufacturing in India, he believes the investment theme became "overrated." Based on this assessment, he asserted that he would not consider buying into the sector at this time. "I would not be a buyer in this space even now. Even after they have fallen so much," he concluded, reinforcing his cautious stance.