“We expect the Indian market to underperform the rest of the emerging markets and even fall in absolute terms,” said Sunil Tirumalai, Executive Director and India Strategist at UBS, in an interview to CNBC-TV18.
“It is better to take a cautious view at the moment and look at those sectors that would perform better on a relative basis,” he said.
“I would be a bit overweight on banks, select auto names and even cement,” he added.
He mentioned that he is a bit cautious when it comes to IT services and also some of the expensive consumer discretionary names.
“There is demand, which is good but it is where the margins would disappoint. Further upside to revenue and demand is unlikely to happen compared to what is already there in the numbers. Those are the areas, which seems to be at more risk,” he mentioned.
Tirumalai believes pumping of money by Indian households into the market is what has kept the levels high in the current fiscal.
“In the first nine months of 2021, Indian households have put in more money into the markets than what they have done in the preceding 10 years. That is the fuel that is keeping the market levels high,” he said.
According to him, as the economy is reopening and consumption resumes, savings will start coming off. Hence the cyclical component of money coming into the market will probably go down.
“If this support of household flows slows down, that can bring down the markets. At 16,000 is where the valuation should start becoming comfortable, both from the absolute and the relative perspective,” he added.
Cost inflation is there across the board, he noted.
“It is coming to a stage where it is now getting passed on to the finished goods’ prices as well. I would be a bit concerned about this,” he said.
Tirumalai believes, one needs to be careful while choosing the new age business stocks.
“Over the long-term, the ad-based or internet-based stocks do have the potential to generate good returns and probably better returns than the old economy stocks but one needs to be super careful in choosing the right stocks. These are extremely rate sensitive stocks,” he said.
“There is no hurry to buy a stock today itself, you can take your time because once you choose the right stock, you can run with it for a long period of time and keep generating your returns. These are the stocks that probably require a bit more effort and research before you decide,” he stated.
For the full interview, watch the accompanying video.
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