Stay invested, sharp dip unlikely unless global shocks emerge: Sandip Sabharwal

"I would agree that inflation will undershoot RBI’s expectations and that will give them lot of leeway to conduct monetary policy in a way where economic revival gets entrenched. And once the economic revival gets entrenched, the good cycle should last for a few years," says Sandip Sabharwal, asksandipsabharwal.com.

So, what is in store now? We have had a good rally, some amount of consolidation. Are we likely to pick it up or we will consolidate for a few more weeks before we pick it up?
Sandip Sabharwal: There is no reason to be negative per se, so that is the base case. So, once you have a view that there is no need to be negative, then you have to look for opportunities to buy into stocks or sectors which you think could provide opportunities and that is what should play off.

I think like the commentary, like the discussion you are doing prior to our interaction, I would agree that inflation will undershoot RBI’s expectations and that will give them lot of leeway to conduct monetary policy in a way where economic revival gets entrenched. And once the economic revival gets entrenched, the good cycle should last for a few years.

The second part for global flows is that what is happening on the US dollar is very important and that is something which people should monitor because US dollar is entering into another leg of a downturn which could take it even 5% to 7% further down from where it is, the US dollar index, and such moves are typically bullish for emerging market equities and we have seen many such cycles in the past.

So, I believe that itself will get in money into emerging markets over the next few months. So, trend is positive. Markets are not cheap, but in bull markets, markets are not cheap, so they get cheap during corrections and those corrections need to be bought into as we saw earlier during the year and people who are still waiting for a very sharp dip, they might be disappointed.


Want to discuss Eternal and we were speaking about this last week as well as to how it has just been consolidating and stuck in a range for a while and now, the fact that it could see outflows of about almost $840 odd million because of both the MSCI as well as the FTSE weight reduction. What is your opinion here?
Sandip Sabharwal: The outflow was already factored in when they took the decision to slash the maximum foreign holding to I believe 49.5%, so that news flow got factored in at that time only. So, this is not new. So, they have announced now, but most of the analysts had already calculated this outflow.

So, Eternal benefits due to it being part of the main index now and to that extent when the index moves up so there is a higher correlation and it also does well. On the other hand, on the business front, I am very sceptical on whatever they are trying to do on the quick commerce, like I have said it many times, the kind of investments they are making on quick commerce and the return potential there.

So, now if they are right in what they are doing over the next two-three years, then there could be another round of significant value creation for shareholders. But my base case would be that the kind of money they are putting into that business, the returns will be very-very low.



Anything late is always bad news. Anything early is not great. Monsoons are 15 days early and 15 days early in a city like Mumbai, I can say that okay, thank God it is raining but it will have impact. It will have impact on lot of sectors. Cement, air conditioning, power, lot of other allied sectors.
Sandip Sabharwal: So, demand for summer products will suddenly collapse, then that includes the power demand also. So, a lot of the merchant power produce also could see much lower rates as monsoon sets in early.

So, because the sowing, etc, happens early and July is where rain should be good and that is something which needs to be tracked before everyone becomes ultra-bullish on the monsoon starting early.


So, what is the basic approach in this market, use the decline to buy, stay invested, do not wait for the decline? Markets are looking vibrant, but they have also run up. If you buy now, you run the risk of running into a correction and if you do not buy now, if markets go higher, you feel bad.
Sandip Sabharwal: So, whoever is invested, they should not be selling unless they invested in the wrong kind of stocks and they want to switch to some other stocks, so that is one part. For people who want to buy, the main thing which should be considered is that are markets likely to have a sharp dip anytime soon and that looks unlikely unless and until, let us say, hypothetically the Indo-US trade talks break down and then those tariffs come up and etc, so those are the scenarios under which there could be heightened volatility again, but ex of that all macroeconomic parameters indicate that there will not be any sharp correction anytime soon. So, the strategy has to be to try and buy the stocks you like at whatever valuations you like and remain invested.



You have tracking Divi’s and Sun Pharma, etc, very closely. Where is it that you are confident of adding to positions?
Sandip Sabharwal: So, in the near term I believe Sun Pharma has some challenges related to additional spending they are doing this year and somewhat lower growth. So, the stock will consolidate rather than seeing a significant rally from here on. On the other hand, Divi’s, there were some concerns about some molecule reducing from next year and that leading to a decline in profits, but on top of that they have now been announcing new deals. So, it could get balanced out. So, I believe that it remains in a decent position, but valuations are stretched at this point of time.