Daily Voice: Near-term rally of 8–10% possible in market, will be gradual & selective, says Right Horizons' Anil Rego

Given the current phase of global macro uncertainty, cautious enterprise spending, and margin pressures, it may be prudent for investors to stay invested in quality IT names rather than take fresh exposure. The IT sector is in a consolidation phase, and while valuations have moderated, near-term headwinds persist.

Near-term Challenges: Global demand remains soft, especially in BFSI and tech verticals, impacting order flows and revenue growth.

Valuation Comfort: While the sector is no longer overvalued, earnings growth visibility is still unclear, which limits the case for fresh entry.

Focus on Quality: Existing investors may hold large-cap IT stocks with strong balance sheets and diversified client bases to ride out the volatility.

Have you made significant changes to your portfolios during the recent market correction?

During the recent market correction, portfolio changes have been measured rather than significant, with a focus on rebalancing and increasing exposure to sectors offering long-term value. The correction was seen more as an opportunity to fine-tune portfolios than to overhaul them.

1. Selective Rebalancing: Mild shifts towards domestic focused consumer and Financials depending on sector valuations and earnings resilience.

2. Opportunity in Weakness: Used market dips to add quality names in sectors like banking, industrials, and consumer.

3. Long-Term Focus: No knee-jerk reactions; changes aligned with structural themes and long-term growth potential.

Do you believe consumer discretionary still looks more attractive than consumer staples for investment? Which sub-sectors would you consider to play the consumer discretionary theme?

Consumer discretionary continues to look more attractive than consumer staples due to improving income levels, premiumization trends, and strong domestic demand. Investors are favouring discretionary plays with better growth visibility and margin potential over staples, which are seeing volume and pricing pressures.

1. Better Growth Outlook: Discretionary segments benefit from rising urban consumption, aspirational spending, and recovery in rural demand.

2. Margin Advantage: Companies in discretionary segments generally have better pricing power and lower input cost pressures than staples.

3. Preferred Sub-sectors: Gems Jewellery & Watches, consumer durables, and retail are key areas to play the theme.

Do you think the auto ancillary space is positioned strongly for growth?

The auto ancillary space is better positioned for growth compared to OEMs, supported by a diversified client base, rising exports, premiumization trends, and a growing focus on EV-related components. While near-term headwinds in domestic auto demand may weigh, structural tailwinds provide a robust medium-to-long-term outlook.

1. Diversification Advantage: Ancillaries cater to both domestic OEMs and global markets, helping them offset localized demand fluctuations and benefit from export growth.

2. EV & Premiumization Tailwinds: Increasing EV penetration and the shift towards premium vehicles support demand for high-tech components like sensors, battery systems, and electronics.

3. Margin Stability: Compared to OEMs, many ancillaries enjoy better operating leverage and pricing discipline, making them relatively resilient during slowdowns.

Do you still find valuation comfort and growth potential in financials? Do you expect healthy credit growth going forward?

Financials continue to offer valuation comfort and solid growth potential, particularly in private sector banks and select NBFCs. The sector is well-placed to benefit from a favourable macro backdrop, improving asset quality, and robust credit demand, despite rising competition and potential rate cycle shifts.

1. Attractive Valuations: Many leading banks are trading at reasonable price-to-book multiples with improving return ratios and strong capital buffers.

2. Credit Growth Momentum: Credit growth remains healthy, supported by retail, MSME, and housing segments; rural and urban demand revival further supports outlook.

3. Resilient Fundamentals: Improving asset quality, contained NPAs, and conservative provisioning offer downside protection and enhance sector confidence.

HDFC Bank recorded 6.7% YoY growth in Q4FY25 profit, exceeding expectations. The net interest income saw a 10.3% YoY increase, while on the asset quality front, gross NPA improved to 1.33% from 1.42% in the previous quarter.

ICICI Bank reported a 18% YoY increase in Q4FY25 profit and its net interest income was up 11% YoY. Gross NPA ratio declined to 2.0% from 2.2% on sequential basis.

Do you believe the market has already found a floor and appears ready for another 8–10 percent rally from here?

The market appears to have stabilized near its recent lows, supported by resilient earnings, macro stability, and sector rotation. However, while a near-term rally of 8–10% is possible, it will likely be gradual and selective, driven by strong earnings delivery, domestic flows, and improving sentiment rather than a broad-based surge.

1. Stabilizing Macro & Earnings Resilience: Inflation is under control, policy continuity is expected, and Q4 earnings (especially in financials and industrials) have come in strong, providing a supportive base.

2. Domestic Liquidity Support: Strong SIP flows and retail participation continue to cushion the market, even amid global volatility or FII outflows.

3. Upside Selectivity: Leadership may come from financials, industrials, and consumer discretionary, while sectors like IT and export-oriented plays may lag amid global uncertainties.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.