Mehta warns rally masks weakening fundamentals
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- Dipan Mehta told ET Now that "the damage to the fundamentals is yet to be reflected" in markets, arguing the real test will come from March quarter management commentary and June quarter company results
- Mehta warned that India has not had a seriously weak monsoon in 4–5 years, and if subnormal monsoon forecasts prove correct, fertiliser/insecticide companies and rural-facing stocks including Hero MotoCorp and Mahindra & Mahindra could face meaningful impact
- Mehta cautioned that higher oil prices combined with a weak monsoon could push food inflation up, pressure interest rates, and weigh on corporate profits and valuation multiples
- Mehta said the lending sector is entering a more challenging phase after 4–5 smooth quarters, with industry loan book growth slowing from 15–16% to sub-10%, and he sees limited upside in private banks like HDFC Bank and ICICI Bank
- Mehta prefers multi-product NBFCs — Bajaj Finance, L&T Finance, Cholamandalam, and Poonawalla — along with PSU banks, where he still sees room for PE multiple rerating
- Mehta continues to avoid largecap IT stocks, citing unresolved uncertainty around AI's impact on software businesses and enterprise spending
- Mehta described defence stocks as "over-owned and momentum-driven" and advised investors to wait for price corrections or earnings surprises before entering
Why it matters: Mehta identifies four converging headwinds — sub-10% loan growth, monsoon stress, oil-driven inflation, and AI disruption in IT — that could surface simultaneously in the June and September quarters, meaning investors riding current momentum face a clustered earnings disappointment the market hasn't priced in. His sector-level warnings name specific stocks (HDFC Bank, ICICI Bank, Hero MotoCorp, Mahindra & Mahindra) that could see valuation pressure if his base case plays out.
