Private banks, tech and capex stocks look promising after market dip: Sandip Agarwal

After weeks of volatility and a sharp correction across segments of the market, investors are beginning to ask whether the decline has created a buying opportunity. While uncertainty linked to global developments still lingers, several domestic factors — including improved valuations and supportive liquidity conditions — are encouraging long-term investors to cautiously revisit equities.

In an interaction with ET Now, Sandip Agarwal, from Sowilo Investment Managers shared his outlook on markets, sectors that are turning attractive after the correction, and areas where caution still remains.

Valuations Turn More Comfortable
According to Agarwal, the recent market decline has made valuations significantly more attractive across sectors, even though volatility remains elevated.

“There is still a lot of volatility and we cannot say that things are settled, but valuation comfort is much higher now,” he said.

“Also, the RBI is consistently pushing in some liquidity and, apart from crude, we do not see a very big jump in inflation numbers. So this is the right time for long-term investors to start looking at the market. Valuation comfort is very high and much better than earlier, even in midcap and smallcap stocks. Across sectors, barring one or two, most have come down to a very reasonable range.”

He added that while global events remain unpredictable, the domestic backdrop appears supportive.

“So I would say yes, it is time to start buying. Obviously you cannot call what global events can unfold, but other than that things look good on the local front.”

IT Sector Back on the Radar
One of the most notable shifts in Agarwal’s outlook is his renewed optimism toward the information technology sector — a space he had avoided for more than a year. “We are now very constructive on a sector which we were not investing in at all for the last 14–15 months — IT,” he said.

“I am looking very positively after a very long time on the tech side. Most of the stocks have come down into a very reasonable range, excluding the ER&D plays. So this one sector looks very attractive right now.”

He also pointed out that the sector’s fundamentals remain strong despite concerns around artificial intelligence and pricing pressures.

“I never had a negative view on the business model. Our business is very sticky — we are the software factory of the world,” Agarwal said.

“The issue this time was that the business model got hit on the effort side because of AI. A 20–25% decline in efforts was expected. Since contracts are typically for five years, there is 3–4% annual deflation. So companies need to grow at 8–9% to post even 5% growth.”

He noted that currency movements have also become supportive.

“With the rupee at around 92, companies get a 3–4% benefit on PAT because of currency. So 8–9% profit growth and valuations of 15–16 times for large caps make it a comfortable investment.”

Earlier valuations, he said, had looked stretched.

“Earlier I was uncomfortable because PEG ratios were very high. The rupee was around 86–87 and growth was almost zero. At zero profit growth you cannot justify a 25–28 multiple.”

Private Banks Regain Appeal
Agarwal also believes private sector banks are becoming attractive again after the recent correction. “PSU banks are posting very good numbers and there is a good runway ahead,” he said.

“But valuations for PSU banks have gone up a little, while private banks have corrected. The incremental reward for only being in PSU banks is receding, so we are now also looking at private banks.” He expects better risk-reward in select private lenders as valuations become more reasonable.

Capital Goods and Manufacturing Showing Green Shoots
Another area turning interesting is the broader manufacturing and capital goods space, where demand trends appear to be improving.

“The manufacturing space was very slow for the last one to one-and-a-half years, but now we are seeing green shoots,” Agarwal said.

He highlighted opportunities across the power and infrastructure ecosystem.

“The whole space right from cables, wires and transformers — which are also part of the ecosystem play for the AI theme — along with core capex companies and industrial goods, are looking good.”

However, he added that within wires and cables, his preference is for smaller companies where valuations remain modest.

“We like the space but we are not looking at the large names because they are super expensive. We are more keen on smaller and lesser-known companies where growth could be better and multiples are low.”

Pharma Preference Shifts to Generics
Within pharmaceuticals, Agarwal said his strategy has shifted away from contract manufacturing toward generic drug companies.

“In pharma we have changed our choice again from CDMO to generic pharma and large branded players,” he said. “There is a lot of value there. The large pharma names in the generic branded space are the ones we prefer.”

He added that the CDMO segment currently trades at valuations that appear too expensive for comfort. “CDMO is very expensive right now, so we are focusing on generic branded pharma where we believe there is good value over a two- to three-year horizon.”

Areas of Caution: Defence, Metals, EMS
Despite finding opportunities in several sectors, Agarwal remains cautious on some pockets of the market.

He said defence stocks do not fit into his fund’s value philosophy due to steep valuations. “We have been abstaining from investing in defence because it does not suit our value philosophy,” he said.

“Although demand will increase due to the current geopolitical situation, we believe valuations do not justify the risk.” Similarly, he sees limited upside in metal stocks after their strong rally over the past year.

“Metals have done phenomenally well in the last year and we do not foresee much return from here,” he said. Instead, his preference is to play the theme indirectly.

“We prefer quasi-plays like pipes and related products rather than direct metal companies because the sector is very volatile.”

Electronic manufacturing services (EMS) is another space where valuations remain a concern. “The EMS space is still expensive. Valuations are priced to perfection and do not account for any kind of miss,” Agarwal said.

“When expectations are so high, any disappointment can lead to sharp corrections.”

Oil & Gas, FMCG and Auto Not Preferred
Agarwal also said his team remains cautious on oil marketing companies and the broader oil and gas sector. FMCG stocks are also not among his current preferences.

He added that the auto sector, which has delivered strong returns in recent years, may also see some caution from investors.

“A lot of money has already been made in auto, so we will be a little more cautious from here.”

Long-Term Opportunity Emerging
Overall, Agarwal believes the recent market correction has created an environment where long-term investors can start gradually building positions, even though global uncertainties remain.

With liquidity support from the central bank, moderating inflation concerns and improved valuations across sectors, he said the risk-reward equation in equities has started turning favourable again.

But he emphasised that investors should remain selective and focus on sectors where valuations and earnings visibility are aligned — particularly IT, private banks, manufacturing and select pharma companies.