Chinese Infrastructure Entry Unlikely, Vodafone Idea Stock Worth Zero Despite Survival: Sabharwal

Market expert Sandip Sabharwal has strongly dismissed concerns over potential large-scale Chinese participation in Indian infrastructure and capital goods projects, describing recent market reports as "highly unlikely" and representing a clear overreaction by investors. Speaking to ET Now, Sabharwal provided a comprehensive assessment of current market dynamics and sector-specific outlooks.

Chinese Infrastructure Participation Concerns Overblown

Sabharwal highlighted several structural factors that make significant Chinese involvement improbable. India currently maintains a $100 billion trade deficit with China while facing persistent supply challenges in critical areas such as rare earth magnets. He emphasised that despite repeated discussions, China has consistently refused to supply rare earth magnets to Indian companies.

The market expert noted that the Indian government's substantial investment of nearly ₹3 lakh crore in Production Linked Incentive (PLI) schemes makes allowing Chinese firms significant access highly improbable. He also pointed out that many Indian engineering and transmission equipment companies already compete globally, deriving substantial portions of their order books from overseas markets where Chinese firms are active.

Vodafone Idea: Survival Without Value

Regarding Vodafone Idea, Sabharwal presented a nuanced but ultimately bearish perspective. While recent clarity on liabilities may ensure the company's survival, he argued this development does little to improve its fundamental long-term prospects.

"The company is not going to shut down, but over the next 20 years I do not see any positive free cash flow generation in a holistic sense. From a valuation perspective, the stock should be zero," Sabharwal stated. He acknowledged that sentiment-driven moves could still trigger short-term rallies despite the poor fundamental outlook.

Market Outlook and Sector Preferences

Sabharwal attributed current market pressure to continued foreign institutional investor (FII) selling and capital migration to global markets demonstrating stronger momentum. He noted that FII flows typically follow momentum, with markets like Korea delivering strong returns and attracting global capital away from India.

For the broader market outlook, Sabharwal expects Indian markets to deliver moderate returns of 12-15% this year rather than outsized gains. He anticipates the ongoing results season will perform better than feared, given currently low expectations.

Sector-Specific Recommendations

Sabharwal identified several sectors positioned for outperformance:

Financial Stocks: Remain well-positioned due to improving credit growth and stabilising net interest margins. His strategies focus on large banks, NBFCs, and lenders benefiting from the financialisation of savings, citing improved earnings visibility across the sector.

Capital Goods: Major companies appear resilient due to strong order books and sustained demand from infrastructure spending.

Consumption Segments: Select areas should see improvement from the fourth quarter onwards, though recovery remains selective.

Regarding Indian Energy Exchange (IEX), Sabharwal described the situation as a "zero-one" scenario ahead of the court hearing on market coupling. A favourable outcome could lead to significant upside as volumes have maintained stability and valuations appear reasonable compared to other exchanges.