Stay put if you already have defence & railways stocks but avoid fresh investments: Dipan Mehta
Dipan Mehta, Director, Elixir Equities, says defence sector earnings have been strong, attracting investors and momentum trading, but valuations appear stretched with potential execution challenges. While railway stocks are rising in sympathy, government expenditure remains stable, and some companies have reported disappointing results. Existing investors may hold, but fresh investments in both sectors are not recommended due to valuation concerns.
ADVERTISEMENT I want your view on the overall market yes, of course, but select packs in the market are once again gaining some steam like railways and defence. These are themes that had seen a runup, then cooled off for a bit and they have started spiking again today. Do you believe this is the beginning of another leg of spikes or do you believe it was just a one-off?
Dipan Mehta: It is a continuation of the momentum which we have seen in these companies over the past few weeks or so. If you analyse the entire earning season, the best sector has been defence, not as much railways, but defence certainly has come out with flying colours and that is why investors are getting focused over there and a lot of momentum trading is also taking place over there and a lot of retail traders have entered these counters,
I think the valuations are a bit stretched at this point of time. No doubt the sector had a great quarter this time, but there are always execution challenges and if you go back into history, there is a lot of lumpiness in their earnings which is not completely discounted in the valuation ratios. So, if you are invested in defence, I would say remain invested but from a fresh investment perspective to me, it is an avoid. Pick undervalued, high-quality stocks: Sonam Srivastava's 2025 playbook
I am not sure about Railways. They are going up in sympathy with the defence hoping that government expenditure will pick up over there. We do not know that for sure because in the last three years, railway expenditure in the Budget has been pretty much stable at around Rs 2.5 lakh crore or so and over there also, despite a steep 30-50% correction in railway stocks, they are still quite expensive and some of the bigger ones like Titagarh Wagons came with a very disappointing set of numbers as well. I would avoid both sectors from a fresh investment perspective. But there is great long-term visibility and if you are an investor with a long-term view, you may remain invested.
The big wave or the fad in the market right now is promoter exits and that too at steep discounts in some cases amid the rich valuations. There are many block deals on a daily basis and some even FII and DII driven. What is that smacking off and should one now warrant caution in the markets? Is it smacking of peak valuations by any chance?
Dipan Mehta: We have seen this play out in the past also in the early half of 2024 right up to September 24 and we saw a correction after that. So, the minute the market starts to do well and valuations get steep, we are seeing promoter selling and we are seeing private equity selling and that all has been absorbed by retail investors either directly or through mutual funds.
ADVERTISEMENT It has not reached the peaks which we saw in 2024, but certainly the trend is getting more and more accentuated. So, yes, it is a signal that markets are at the expensive zone and in my opinion, there are less uncertainties now than a few months ago with the exception of Trump and we do have a supportive Reserve Bank and a lot of favourable macro factors as well. In this earning season one thing is very clear that it has been very selective.I suspect the next few months will be very selective for the markets as well and wherever there are pockets of overvaluation, we will continue to see supply and this is going to be a very challenging time for the investors and not like what we saw last three-four years up to September '24 where entire market rallied. The entire trend is going to get very narrow and it is going to be a bit difficult to charter for the novice investors.
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