ICICI Securities favours data center, defence stocks; says market better placed than in March

India's equity market is in a stronger position than it was during the correction seen earlier this year, supported by healthy corporate earnings and improving valuations, according to Pankaj Pandey, Head of Retail Research at ICICI Securities.

While geopolitical risks and higher crude oil prices continue to weigh on sentiment, Pandey expects the current correction to offer opportunities in select sectors such as data centers and defence.

Pandey said ICICI Securities continues to prefer companies linked to the data center ecosystem rather than optical fibre manufacturers, even as the latter have delivered strong returns. He also believes earnings momentum and attractive valuations could support the market once uncertainty eases.

"The earnings have been pretty good," Pandey said, adding that " Nifty is trading below COVID P/E multiple if I look at two-year forward earnings," suggesting valuations have become more reasonable after the recent correction.

Pandey said the data center sector remains a long-term opportunity despite recent volatility following artificial intelligence (AI) company Anthropic's initial public offering (IPO) filing. While he does not formally cover Sterlite Technologies, he said ICICI Securities is playing the theme through companies such as

CG Power, Kirloskar Oil Engines, Aeroflex Industries, and Venus Pipes & Tubes.

He noted that CG Power has reported margin expansion, while Kirloskar Oil Engines could benefit from rising demand for backup power solutions required by data centres. Aeroflex is seeing growth of over 30%, while Venus Pipes recently secured a ₹185-crore order linked to the sector.

"Optical fibre companies have done phenomenally well from a number perspective and even from the pricing perspective," Pandey said, but added that his preferred way to play the theme remains through companies supplying equipment and infrastructure to data centres.

Looking at the broader earnings season, Pandey highlighted Bank of India, Kotak Mahindra Bank, and Kajaria Ceramics among companies that delivered encouraging results. He said Bank of India continues to report return on assets above 1%, while Kotak's core loan growth remains healthy despite near-term pressure on net interest margins.

He also said Kajaria Ceramics appears to be emerging from the worst phase of input cost pressures, helped by price hikes and improving margins.

Pandey said the current market correction differs from the sell-off witnessed during the January-March quarter. Unlike earlier in the year, corporate earnings have remained resilient across largecap, midcap, and smallcap companies.

In the information technology (IT) sector, Pandey remains cautious on largecap companies such as Infosys, citing slower growth and lower revenue guidance. He believes Infosys could take six to eight quarters to return to high single-digit dollar revenue growth.

Instead, ICICI Securities prefers Tier-2 IT companies including Coforge, Persistent Systems, and Indegene

, where revenue growth prospects remain stronger.

Pandey is also selective on cement stocks. While valuations have corrected significantly, he said pricing power remains weak because companies have been unable to balance demand growth with pricing. He continues to prefer UltraTech Cement among largecap cement names but is not yet positive on smaller players.

Among his highest-conviction ideas, Pandey highlighted the defence sector, saying government spending is unlikely to slow regardless of fiscal pressures. Within the space, he said Apollo Micro Systems stands out because of its expanding product portfolio, improving margins and strong earnings outlook.

For the full interview, watch the accompanying video



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