Ridham Desai of Morgan Stanley says there is a high level of uncertainty caused by the currency exchange, the upcoming Union Budget, general anti-avoidance rule (GAAR) and GST implementation, impending state elections, and flux in US policy.
However, valuations are attractive and set the case in favour of stocks, he feels.
He is overweight on consumer discretionary, financials, and technology and underweight on consumer staples, energy, materials and telecom.
In focus list, Desai says he is replacing LIC Housing Finance with analysts' favoured non-banking finance stock, Bajaj Finance.
Meanwhile, Mahesh Nandurkar of CLSA says repo rate cuts over the last two years by the RBI were not completely transmitted into lending rate cuts.
But after demonetisation, improved liquidity has driven banks to cut marginal cost of funds based lending rate (MCLR) by up to 90 bps, he adds.
He believes new MCLR should become the effective cost of borrowing gradually over the next 12 months, which is likely to bring a 1 percent increase in FY18 earnings for coverage universe.
Nandurkar says preferred picks on the back of this interest cost reduction theme are JSW Steel, IRB Infrastructure, Sadbhav Engineering, Apollo Hospitals, Tata Communications, PVR, Arvind and Aditya Birla Fashion & Retail.
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