Manish Sonthalia of Emkay Investment Managers, in an interaction with CNBC-TV18 mentioned that valuations of stocks within sectors like defence, infra, railways, capital goods are still on the “prohibitive side.”
Shares of Railway companies like IRFC, IRCON, RVNL have corrected between 30% to 40% from their record high levels, while those of shipbuilders like Cochin Shipyard and Garden Reach have halved from their peak.
Sonthalia said that there could not be a direct co-relation between assigning earnings multiple to order books that have to be executed over a long period of time.
“When you take a call on capital goods or infra players, and when you want to give earnings multiple to order books, which have to be executed over the next 5-8 years, I don’t think that sort of a direct correlation exists between an order book that to long dated order books and P/E multiple. To my mind, that’s quite fallacious and driven more by sentiments, rather than anything else,” Sonthalia said.
“At best you could, price in earnings growth on order books, which you have a visibility of the next 2-4, years. But nothing like an 8-10 year order book, and you want to give a multiple to that,” he added.
However, Sonthalia is betting on the rupee to depreciate further and therefore, is placing his bets on sectors sensitive to the same. He also suggests some sectors within the PSU basket that investors could look at.
“I would believe that the best sectors to invest in in current times, given that there is a propensity for the currency to depreciate even from these levels, would be the export-oriented sectors, the IT, pharmaceuticals of the world, banking, in any case, was very cheap. You could look in at PSU and some of the platform companies, particularly the financial services side of things, I think those would be the best plays,”
The fund manager remains wary of capital goods and the infrastructure space as he believes that they are mostly sentiment driven, although he does expect sentiments to change if government spending picks up in the second half of the financial year.
