Equities look good in medium to long-term; bullish on banks and energy: HDFC’s Prashant Jain

“There could be some lag for full-blown capex recovery, because it takes time for companies to actually commit money on the ground,” he said. “But we are seeing large announcements especially in the metals space, in the cement space… even power capacity too will need to be added. We can look forward to a good time in the capex space,” he added.

Jain picked energy because the stocks have underperformed for a long time. Markets have priced in a shift away from fossil fuels, "like there is no future in fossil fuels". "That clearly is not the case," he said.

He is also optimistic about the export manufacturing opportunity for India. "Growth rates for the next five to ten years should be much higher than what we have achieved in the last decade,” added Jain.

Also read: Prashant Jain lightens positions on some PSU stocks

Advantage banks

Inflation will affect the consumption-dependent sector. But, the heavyweights in the indices are the banks and they look poised to make the best of a conducive business environment, he said.

“We need to look at the sectoral composition of the markets. Consumption would be a bit weak. But the weight of consumption in NIFT is actually quite small, and banks have the biggest weight. Banks should have a good business environment going ahead because inflation leads to higher credit growth,” he said.

“Rising interest rates are good for margins of banks, at least for those banks that are liability rich, and all the index heavyweights banks have good liability franchises,” he added.

Jain expects banks to deliver good topline growth.

Banks did see considerable underperformance because of significant selling by FIIs, he said. “But banks’ outlook appears to be quite good to me,” he added.

True, the rate hike will lead to more FII outflows and FII selling will pose a challenge in the short term, according to the expert. “Whenever FIIs selling tapers off or flows turn positive, it would be good for the market. But it is hard to say when that would happen,” he said.

That said, the markets have held up despite the heavy FII selling. “We can all pat ourselves on the back… it (markets holding up) shows that equities have become widely accepted. That they have moved from the peripheral to the core,” he said.