Sandeep Bhatia, Head of Equity-India and Country Head, Macquarie Group, says that despite the recent correction in the Indian stock market it is still early for investors to consider buying on dips.
In an interview with CNBC-TV18, he said India faced setbacks due to events within the country, as well as China’s emergence as a clear favourite among investors.
Although there are some outflows from China on the back of discomfort over political discrepancies in the country, Bhatia expects weakness in the Indian market to continue at least until the onset of the monsoon.
Bhatia also expressed concern about the unusual temperature increases in India. “If that continues, it could be negative for crop output for wheat, which could eventually result in inflation staying sticky at higher levels,” he said.
In addition to the weak monsoon and sticky inflation, Bhatia believes that the expectation of another 25 basis point rate hike by the Federal Reserve is another significant drag on the Indian market. One basis point is one-hundredth of a percentage point.
Taking into account near-term concerns, Bhatia suggested that retail investors look for buying opportunities once the Nifty 50 slides below 16,800 points. Until then, he advised investors to invest in short-term liquid funds to reap the benefits of high-interest rates.
Near-term triggers
Bhatia cautioned that any negative developments in the Russia-Ukraine war that could deepen the conflict between the Kremlin and the US or NATO could potentially cause the Nifty 50 to fall below 16,000 points
Apart from concerns around the war, stagnation in developed markets, particularly in Europe, and sticky inflation in the US, are major headwinds for the next 18 months, according to Bhatia.
He also identified three potential upside triggers that could pull the domestic market out of its weakness. He said: “A return of fund flows, good monsoon, and a likely surprise on the growth front are three upside triggers that might support a recovery in the domestic market.”
Sectoral picks
Bhatia seems to be bullish on the Information Technology (IT) sector with a two-year view. The bullishness is driven by the expectation that the economic weakness in the US will not be a major disruptor. Even so, he advises investors to consider the IT sector as a medium-to-long-term investment and not for short-term gains.
Bhatia attributed the fall in banking stocks to the accusations levelled against the Adani Group by US short-seller Hindenburg Research and their exposure to the conglomerate. “There have been some fears that it might be another banking crisis, but we do not believe so,” he said. Even though banks look interesting, the lack of incremental inflows in the market and the sector are responsible for their underperformance, he explained.
Therefore, he suggests that investors wait for a further correction in the market to invest in banks as valuations of the sector are attractive even at current levels.
Bhatia is also positive on the electric vehicle space, given its strong growth prospects. Within the sector, he prefers Mahindra & Mahindra and Tata Motors because they are two of the biggest original equipment manufacturers in the country.
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