Higher oil prices and a stronger dollar are headwinds for India, Mowat said.
The decent earnings growth outlook, positive economic data and capital inflows are expected to support the equity market rally, said emerging market equity strategist Adrian Mowat.
He said there is an expectation of a melt-up in equity markets, where bond markets do not look like an attractive place to be in.
However, there are some of the negative points that investors should keep an eye on. With regards to India, the oil market could prove to be tight in the summer months, Mowat said.
"The US is removing waivers on importing oil from Iran, also refineries are ramping up production ahead of the driving season," he said, adding that DXY has rallied quite strongly.
The dynamics for India within the emerging market pool is that it could be neutral to a bit of an underperformer because of these headwinds in terms of a stronger dollar and higher oil price, said Mowat.
With regards to earnings, he said, "I would argue that the positive earnings revision story is something you would find in other markets, not just specifically India."
On the election outcome, he said if the current administration is reelected, it would not generate a positive surprise. "We run a risk with more on the downside that if you were to get a negative surprise if the ruling coalition’s majority is severely eroded, there is more downside risk in the market than getting a confirmation that the consensus is correct on their expectations," said Mowat.
On sector specific, he said they would be buying into the HDFCs of this world, the insurance companies but would hesitate to make a sweeping statement about NBFCs as a strategist because there is a huge divergence of performance of NBFCs in India. "Going long on banks and insurance is a very reasonable position to have in the market at this point in time," said Mowat.
With regards to the auto sector, he said the global environment for the sector is extremely challenging. Automobile sales are weak globally, which could be due to technology change and with expectations that electric vehicles will start to become affordable over the next couple of years.
Therefore, the auto sector is underweight structurally, globally, he added.Source: CNBC-TV18The Great Diwali Discount!
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