HDFC Securities’ Devarsh Vakil bets big on Cement, Telecom; warns on overheated sector

The Indian stock market continues to remain volatile amid the rising tariff concerns and global economic cues and FII outflows, but expects domestic resilience from monetary easing, strong corporate earnings, and robust IPO momentum. One such name is Devarsh Vakil, Head of Prime Research at HDFC Securities, who see Indian equities are at a crucial juncture as Q1FY26 earnings showed modest growth, with oil & gas, cement, healthcare, and telecom leading while IT, autos, and consumer sectors lagged. In an interaction with Business Today, he remained optimistic on cement and telecom while cautioning on richly valued hospital stocks. Read the edited excerpts: 
 

Q.1 How do you assess the overall Q1FY26 earnings season? Which sectors-companies missed D-Street expectations? Which sectors have emerged as earnings outperformers and which ones have disappointed?

Ans: In Q2FY26, The Nifty delivered an 8% YoY PAT growth (vs. our est. of +5%). Nifty reported a single-digit earnings growth for the fifth consecutive quarter since the pandemic (Jun’20).

The oil and gas, cement, healthcare, and telecom sectors showed robust earnings growth, while the IT services, automobile, and consumer sectors faced challenges.
 

Q2. How are global factors like Trump’s tariff policies shaping investor sentiment in Indian markets, as new rules have come into effect? Do you see more near-term volatility in equities due to these tariff risks, or the worst is behind us?

Ans: Trump’s newly imposed 50% tariffs on Indian exports have significantly dampened investor sentiment in Indian markets, leading to notable near-term volatility. This will lead to earnings forecast cuts and margin compression for companies heavily reliant on exporting to the US markets.

The Indian rupee fell to an all-time low. This sharp fall is primarily driven by mounting concerns over the new US tariffs and the persistent outflow of funds from foreign institutional investors (FIIs) from the Indian markets.
Investors have been cautious in recent weeks amid concerns about inflation, global growth, and foreign capital flows. 

Q3. The IPO market has been buzzing — what’s your outlook for primary markets in the coming quarters? Which new spaces look attractive to you? Are retail investors showing more maturity in IPO participation compared to past years?

Ans: The IPO market raised about $4.6 billion in H1 2025, with a cautious but positive outlook for H2 2025 driven by stabilising macroeconomic factors and supportive government policies.

Retail investors are demonstrating growing sophistication and confidence in their investment decisions, evidenced by frequent oversubscription of offerings and an increasing focus on company fundamentals and market dynamics when evaluating participation opportunities Several major companies like Tata Capital, Lenskart Solutions, LG Electronics India are expected in near future.
 

Q4. What fresh domestic or global cues should investors watch for in the next 3–6 months? What’s your strategy for navigating current markets — defensive play or growth-oriented picks?

Central banks across developed nations are displaying divergent approaches to monetary policy, reflecting varying economic conditions and inflation outlooks. This divergence creates opportunities and risks for global capital flows and currency movements. 

In India, the RBI is expected to ease policy further, driven by a more favourable monsoon outlook and a moderating inflation trajectory.

Besides this, a sustained pickup in corporate earnings is a critical driver for equity markets, signalling underlying economic health and improved business fundamentals. Investors will be closely scrutinising quarterly results for signs of robust top-line and bottom-line expansion.

We are projecting a significant rebound in corporate earnings for FY26, with Nifty 50 companies potentially seeing 12-13% growth. Sectors such as financials, real estate, FMCG, and capital goods are expected to be key beneficiaries, driven by monetary easing and robust domestic demand.
 

Q5. How do you see FPI flows in the remainder of FY26? What factors can attract them in the near term? Also do you think India's renewed alignment with China and Russia could add pressure on the US?

We remain concerned about foreign flows. For the year to date, FIIS has net sold Rs 1.96 lakh crore.  In the short term, a depreciating rupee, India's higher relative valuation compared to other emerging market peers, and subdued corporate growth suggest that the current trend is unlikely to reverse significantly. However, at lower market levels, when valuations improve and in anticipation of stronger growth in the second half of the year, we expect foreign institutional investors (FIIs) to return to Indian markets.
 

Q6. Which sectors look attractive or undervalued at the current point in time? Is the entire broader market richly valued or do you see some value there too? Could you share your top 3 stock picks from largecaps, midcaps and smallcap spaces?

The Indian cement industry is witnessing robust growth with a 7-8% CAGR demand forecast through 2027, driven by strong infrastructure spending and housing demand, alongside an unprecedented consolidation phase where major players like UltraTech Cement and Adani-owned Ambuja Cement have aggressively acquired over 65 million tonnes of capacity recently, enhancing market reach, operational scale, and pricing power. UltraTech Cement, Ambuja Cement, Star Cement, Sagar Cement, JK cement are our top picks from this space

From the telecom sector has delivered a better-than-expected earnings performance, driven by improved average revenue per user (ARPU), expanding 5G adoption, and continued growth in home broadband connections. However, Bharti Airtel and Bharti Hexacom witnessed muted ARPU growth, and Jio’s ARPU rose QoQ to Rs 206.2 from Rs 203.3. Margins performance has been robust, supported by the positive impact of tariff hikes and lower fuel costs.
Companies’ management is positive and expects to see another ARPU hike in the next one to two quarters. Overall, FY26E could be one of the best years for telecom service providers like Bharti, Bharti Hexacom, and Indus Tower.

Given expensive valuations, we are cautious on the hospitals in the near term. Almost all players are expanding beds capacity by 50-80% except HCG and this would lead to heightened supply in the sector.  Hospital stocks have seen significant run up in the last few months.