Dipan Mehta on NCC Debarment, AI Stock Valuations & CDMO Bets

Introduction: Navigating a Selective Market

In a market environment characterized by volatility and selective opportunities, Dipan Mehta, Director at Elixir Equities, has provided a clear perspective on several key sectors and stocks. His analysis covers the recent setback for infrastructure firm NCC, the soaring valuations of Artificial Intelligence (AI) linked stocks, and the long-term potential of the Contract Development and Manufacturing Organisation (CDMO) space. Mehta's approach emphasizes a disciplined, valuation-conscious strategy, advising investors to look beyond short-term market noise and focus on underlying business fundamentals.

NCC: A Test of Investor Patience

Shares of infrastructure major NCC experienced a sharp decline on February 19 following a debarment order from the National Highways Authority of India (NHAI). The company disclosed that both it and its step-down subsidiary, OB Infrastructure, have been barred from participating in NHAI tenders for two years, effective from February 17, 2026. This development understandably caused concern among investors.

However, Dipan Mehta advises against a knee-jerk reaction. He views such events as inherent volatility within the infrastructure and construction sectors. "Such ups and downs keep happening with such companies, and you need to diversify your holdings within the infrastructure space," he noted. Mehta pointed to NCC's strong track record of delivering on large projects and its robust order pipeline as reasons to remain confident. He stated he would not sell the stock based on this development alone and recommended that investors hold onto quality names in the sector, highlighting Larsen & Toubro (L&T) as a "must-own stock."

The AI Dilemma: High Growth vs. High Valuations

The buzz around Artificial Intelligence has propelled stocks like Netweb Technologies to significant highs. While acknowledging that Netweb is well-positioned in the high-performance computing segment to capitalize on AI demand, Mehta expressed strong reservations about its current valuation. "Another P/E multiple kind of scared us, so we did not invest in it," he admitted.

Mehta explained that the limited number of direct AI plays listed in India has led to inflated valuations. He warned that investing in such high P/E stocks, while potentially profitable in the short term, often leads to diminished returns over a three to five-year horizon. His strategy is to wait for either a significant price correction or for the company's earnings to grow sufficiently to justify the high valuation. This cautious stance extends to the broader IT services sector, where he sees a potential for a short-term "trading rally" but remains unconvinced about sustainable, AI-driven double-digit growth for large-cap firms just yet.

CDMO Sector: A Long-Term Bullish Stance

Despite recent weak earnings from companies like Cohance Lifesciences (formerly Suven Lifesciences), Mehta remains very positive on the CDMO segment. He believes the opportunity for existing investors to exit has likely passed and advises them to stay invested for a potential recovery. His optimism is rooted in fundamental industry shifts.

"I remain very positive on the CDMO space… a turnaround could be there next two, three quarters down the line, because the inquiries have doubled for these companies," he stated. Mehta sees a strong structural tailwind for Indian CDMO firms, driven by the global "China plus one" strategy, where companies are diversifying their supply chains away from China. He believes players like Divi's Laboratories, Cohance, Dishman Pharma, and others with a technological edge have a bright future.

Broader Market and Sectoral Views

Mehta acknowledges the market has entered a choppy phase but believes the underlying fundamentals remain strong. He anticipates the current earnings season could be one of the best in recent quarters, potentially setting the stage for a new rally. His sectoral preferences are clear and selective.

Investment Strategy and Conclusion

Dipan Mehta's commentary underscores a strategy centered on discipline and fundamental analysis. He advocates for a diversified portfolio, especially in cyclical sectors like infrastructure, and warns against chasing momentum in overvalued stocks, regardless of the hype surrounding themes like AI. His conviction in the CDMO space is based on a long-term structural shift in global manufacturing and supply chains.

For investors, the key takeaway is the importance of patience and a focus on valuation. While the market may experience short-term turbulence, Mehta believes that sustained improvement in corporate earnings is the ultimate driver of long-term wealth creation. His advice is to hold onto quality businesses, be wary of speculative fervor, and position for structural growth stories that offer a more predictable path to returns.