1 week ago
India's stock market has been consolidating for nearly six weeks, marked by consistent foreign portfolio investor (FPI) outflows and subdued domestic activity. Gautam Chhaochharia, Head of Global Markets, India at UBS, says there are four key catalysts necessary to move beyond this phase.
First, sustained improvement in high-frequency economic indicators, particularly consumer spending following the festive season, is essential.
Second, a more supportive policy stance from both fiscal and monetary authorities is needed, including increased government spending and a flexible approach from the Reserve Bank of India (RBI).
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Third, the implementation of structural reforms post-elections could boost investor confidence and stimulate market activity.
Finally, global policy developments, especially in the US, remain influential; shifts could alleviate global economic pressures on emerging markets like India.
Chhaochharia notes that the ongoing consolidation is partly due to high valuations and modest earnings growth, leading to an "underweight" stance on India. Until these catalysts materialise, the market may continue to consolidate.
Sunil Tirumalai, Head of EM & Asia Equity Strategy at UBS Securities, also shared his perspective on the sectors currently presenting attractive opportunities and those requiring caution.
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According to Tirumalai, the banking sector remains a standout, still trading below its historical valuation levels despite foreign institutional investor (FII) outflows impacting performance.
While concerns persist around faster credit growth compared to deposit growth, he sees selective opportunities in banks, suggesting the sector may offer value as trends in deposit growth begin to stabilise.
Tirumalai also highlighted the government’s recent recognition of a temporary slowdown in capital expenditure, though he expects spending to resume soon, offering positive visibility for industrial stocks.
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However, he advised caution regarding consumer discretionary stocks that rely heavily on retail lending. With borrowing-driven consumption facing headwinds, he views this segment as more vulnerable in the current environment.
