As coronavirus concerns resurface with the possibly more infectious Omicron strain and the US Federal Reserve taper remains on cards, Indian markets will likely continue to see a pullback, Sandeep Bhatia, Country Head-India, Macquarie Group, has said.
“We saw a lot of inflow in the first half of the year due to various reasons. Hence, valuation correction is on cards, and we expect the Nifty 50 to either be rangebound or correct 1,000 points until the Budget,” Bhatia said in an interview to CNBC-TV18.
The rally that Indian shares saw in the first half of the year was because the market had already priced in a recovery in economic growth and that benefitted all sectors, including airlines and tourism.
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“So, any negative news related to the Omicron variant of COVID-19 or negative growth would warrant a correction in the market,” he said.
The Nifty has risen more than 22 percent year-to-date despite the second wave of COVID-19, which caused a severe healthcare crisis in the country.
“In emerging markets, India is at the peak in terms of valuations, and there are better plays elsewhere,” Bhatia said. If the US Fed taper gathers momentum in the first two quarters of the next year, then all emerging markets would see outflows, he said.
Bhatia, however, said there are plenty of investment opportunities in select stocks and sectors. He is bullish on ICICI Bank, Infosys, and NTPC. He also likes Asian Paints and believes easing commodity prices will benefit the paint-maker.
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He is also upbeat on the real estate sector, which he said will see a longer-term uptick, especially because it has seen a robust recovery after almost a decade.
“Real estate prices and volumes have gone up and price and time correction has made property more affordable. Hence, this is one sector that should see continued interest,” he said.
He expects India to benefit from the trends in the healthcare space, as it has become a structural long-term theme globally.
He is cautious on the auto sector and said one should wait and watch how the semiconductor shortage evolves over the next six months. While he expects the shortage to resolve by June-July, geopolitical tensions in Taiwan, world’s chip factory, could play a spoilsport.
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“We want to see how Maruti Suzuki responds since the company has said it will not entirely focus on electric vehicles but continue to focus on hybrids and gasoline engines as well… It needs to be watched to understand the underlying changes in the auto industry,” he said.
And even as several new economy players debut on Dalal Street, Bhatia is wary of the “frothy” valuations in recent listings. He said Macquarie is cautious on Paytm, and the brokerage had initiated coverage on the digital payments platform with an “underperform” rating ahead of its listing. “We believe Paytm’s business model lacks focus and direction,” it had said in a note.
“The only thing that will differentiate such companies is if their business models are robust and whether they can deliver on earnings,” Bhatia told CNBC TV18.