Bullish on power, energy, and BFSI; cautious on IT amid weak earnings: Devarsh Vakil

Synopsis

HDFC Securities sees opportunity in India's recovering equity markets. The firm favors power and energy sectors, citing infrastructure growth. Financials, including banks and NBFCs, are also preferred. However, the IT sector faces an underweight stance due to uncertain earnings. Sun Pharma's growth strategy and Varun Beverages' expansion are noted positively.

India's equity markets have seen a notable recovery from their March lows, and HDFC Securities is placing its bets on power, energy, capital market plays, and select financial stocks, while maintaining a cautious stance on the IT sector.

Power and energy lead the way

Devarsh Vakil, Head of Prime Research at HDFC Securities, identifies power and energy as top overweight sectors in the firm's model portfolio. Within the power value chain, Vakil points to utilities, grid upgradation plays, battery management software companies, and transformer manufacturers as pockets of opportunity.

"Larger cap names like Power Grid and NTPC continue to remain in our largecap model portfolio," Vakil noted, adding that several smaller names across the power ancillary space also offer compelling risk-reward.

The bullish thesis on power aligns with India's accelerating infrastructure buildout, rising electricity demand, and increasing investment in grid modernisation both domestically and globally.

BFSI remains overweight; NBFCs offer tactical upside

HDFC Securities also holds an overweight position in the banking, financial services, and insurance (BFSI) space. Vakil highlighted large banks such as ICICI Bank, Kotak Mahindra Bank, SBI, and Axis Bank as preferred picks, alongside select NBFCs including M&M Finance and PNB Housing Finance.

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With the Reserve Bank of India's repo rate cycle appearing to bottom out, Vakil argues that NBFCs are well-positioned to weather broader macroeconomic uncertainty. He noted that diversified loan books — spread across retail, housing, and SME segments — should help these companies maintain stable net interest margins of 3.5–4%, even if input cost pressures persist for smaller borrowers.

"In a scenario with significant geopolitical uncertainty, financials can sidestep the potential destabilising impact of higher energy costs," Vakil explained.

However, he flagged that the firm will look to reduce its relative overweight in BFSI as the current earnings season concludes and stock prices approach yearly target levels.

IT sector: Expectations unmet, underweight stance maintained

In contrast, HDFC Securities remains underweight on the IT sector. Vakil cited disappointing quarterly results and an uncertain earnings trajectory as reasons for the cautious view. "Quarterly results are still waiting to stabilise," he said, suggesting that the sector's near-term recovery may remain elusive.

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Pharma: Management quality matters; Sun Pharma a standout

On pharma, Vakil pointed to Sun Pharma as an example of a company deploying its strong cash reserves to drive meaningful global growth, contrasting it with IT companies that have used cash primarily for buybacks rather than business expansion. He said the market is increasingly rewarding companies that invest for growth over those focused on balance sheet strengthening.

Varun Beverages: Positive long-term view

HDFC Securities carries a positive outlook on Varun Beverages, which has steadily expanded its manufacturing footprint and distribution network. The company also deployed a ₹17,500 crore QIP raised last year to enter newer geographies. The stock had already moved past HDFC Securities' previous target of ₹500, and the firm was reviewing its rating at the time of the interview.

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