Market expert Sandip Sabharwal has assessed the current earnings season as characterized by cautious stability, with Indian equity markets navigating through mixed sectoral performance. Speaking in an interview with ET Now, Sabharwal highlighted that while results have been steady, they lack exceptional momentum, creating a measured market environment.

IT Sector Shows Resilience

The information technology sector has emerged as a relative bright spot during the earnings season. Sabharwal noted that most IT companies have reported results slightly better than market expectations and have indicated prospects for improved growth ahead.

This performance has helped stabilize large-cap IT stocks, while several mid-cap companies in the sector have also delivered better-than-expected results.

Banking Sector Maintains Asset Quality

The banking sector has provided reassuring signals, particularly regarding balance sheet health. Sabharwal emphasized that asset quality has held up very well across the banking sector, indicating underlying financial stability despite broader market uncertainties.

Labour Code Impact Creates Result Distortions

A significant factor affecting result interpretation across sectors has been the implementation of new labour code requirements. Sabharwal cautioned investors about extraordinary write-offs that companies must undertake due to these regulatory changes.

"These extraordinary write-offs which all companies have to do due to the new labour code are distorting all the results, and so that is why you need to decipher it with and without that," he explained, emphasizing the need for careful analysis of underlying operational performance.

Pending Results from Key Sectors

While financials and IT have been the major sectors reporting results so far, several important segments remain pending. The automotive sector and capex-oriented companies are expected to report their results in the coming weeks, which could provide additional market direction.

Wires and Cables Segment Shows Exceptional Growth

The wires and cables segment has attracted significant market attention due to its robust growth trajectory. Despite sluggishness in other construction-related sectors, this segment continues to demonstrate aggressive growth patterns.

Sabharwal noted the intriguing nature of this growth, particularly given that other construction-related products have not shown similar momentum. The segment benefits from copper being a pass-through cost, allowing companies to maintain margins despite rising raw material prices.

Regarding competitive intensity, Sabharwal suggested that while competition will increase substantially, the impact may be less severe than seen in the paints industry due to the more diverse market structure in wires and cables.

Consumer Durables Face Weather-Dependent Challenges

The air-conditioning segment presents a cautious outlook following a challenging previous season. After experiencing strong growth for one-and-a-half years, the sector faced setbacks due to extended monsoons and benign summer conditions, resulting in inventory accumulation in the system.

Future demand will largely depend on weather patterns, with some forecasts indicating potential for a more severe summer season that could boost demand recovery.

Tyre Sector Benefits from Favorable Conditions

The tyre industry has shown strong quarterly performance, supported by multiple favorable factors. Companies are benefiting from benign raw material costs, as rubber and crude-based derivative prices remain subdued, contrasting with pressure faced by companies using metals as inputs.

The recent GST rate cut has provided additional support by stimulating replacement demand, while commercial vehicle manufacturers have also indicated demand improvement, creating a constructive outlook for the segment.

Overall, the earnings season reflects resilience rather than exuberance, with selective sectoral strength offering opportunities amid a measured market environment.

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.