Avoid euphoric valuations, keep cash for better entry points: Pankaj Tibrewal

Synopsis

Pankaj Tibrewal of IKIGAI Asset Managers finds current valuations too high for new investments. Defence sector valuations are especially prohibitive. Cement sector, particularly in South India, shows promise due to price hikes. Metals also present an opportunity for investment. Consumer discretionary stocks are expected to perform well in the second half of fiscal year 2026.

"If the similar situation happens because of any other reasons, we will be looking it with an open mind. But right now, valuations are prohibitive for us to take incremental calls," says Pankaj Tibrewal, IKIGAI Asset Managers.

Interesting that you say that that there is still value on the table and you just fleetingly mentioned some of those homegrown companies looking at defence and defence really seems to be the flavour right now especially since the unfortunate incidents on the line of control. But tell me, are you looking at defence as a pack in a new light now that it needs to be part of your core portfolio.
Pankaj Tibrewal: Obviously, defence is a good space to be in, but do not forget that valuations today are prohibitive. Most of the defence companies you are paying about 8 to 10 times price to sales.

Forget about PE, but you are paying 8 to 10 times price to sales. So, we need to be cognizant of the fact that yes, there is business momentum and there is a hope that in the next year budget looking at the current events, the allocation to this sector will meaningfully go up and some of the defence products, the world has appreciated and they are lying, so export opportunity becomes larger.

But the valuation itself is factoring in a lot of these hopes and optimism. So, if the valuations cooled down for whatever reasons and it happened post elections if you remember post June, there was still a lot of optimism and stocks corrected by 40% to 50%. If the similar situation happens because of any other reasons, we will be looking it with an open mind. But right now, valuations are prohibitive for us to take incremental calls.

While you did talk about a couple of sectors within the consumption as well as speciality chemical plays that are looking good, but the last time you connected you did share some of the other sectors like cement, consumer durables, cap goods, and even banking and add to that list was metals. Give us some sense that any of the sectors do you believe that still presents headroom for the investors to put in some money and earn out of that?
Pankaj Tibrewal: Yes, on the cement side we have been extremely positive, and we believe that this year at least in the first half the cement sector will report very strong numbers, one because of the low base and second because structurally the margins have now started to come back.

And the region to play out there is south India. Incremental delta change will be very-very high in south cement manufacturers because the price hike which has happened in April has sustained itself and the follow-up price hike could happen in May and June as per our dealer checks.

So, cement and especially the south Indian cement players looks to be in a very sweet spot from delta and incremental change perspective. The second big contra call which we discussed last time was metals and we have seen a very sharp move up from the recent lows. I still maintain my view that metals is something which we need to have a positive view on and the simple reason is that if you look at the last 25 years metal is one sector where it is back to in terms of contribution to the overall profit pool of corporate India and if that happens, there is always a mean reversion which takes place, that was the reason in September of last year we went overweight on cement and this is the reason we are slightly started taking positions on metals in India because contribution back to that level is a very-very decent space and a good margin of safety to have.

So, we have pure ferrous as well as some of the second derivatives of metals like pipe companies in our portfolio and we believe that is a good way to play over the next 12 to 18 months and earnings growth in this sector will optically look very-very high.

So, these are the other two areas and obviously on consumption we covered about the consumer durable, retailing, some of the footwears stocks looking good. So, broadly the overall consumer discretionary pack is in my view the second half of FY26 will see very strong bump up out there.

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