Nifty@record highs! Time for retail investors to shift from large banks to undervalued IT stocks

Indian market hit a record high in November and the momentum continued in December as well. Where is the market headed?
We have been bullish on Indian equities since June 2022, and we continue to have the same stance even going forward.

Indian market is the first market in the G-20 countries that touched a new high in the CY 2022 itself.

The recent rally seen in the Indian market stands out when we compare it to EMs. The rally also makes Indian markets slightly expensive compared to global peers. Will India be able to hold on to the outperformance?

Yes, the Indian market is one of the most expensive emerging markets, but it comes with a reason & i.e. our economic growth potential & less geo-political risk due to non-aligned foreign policy. Hence, in my view, the Indian market deserves this premium valuation.

Where do you see the next set of leaders emerging from?

The next leaders will come from IT, pharma & some of the highly undervalued PSU stocks & banks.

Long-term investors should start accumulating these value sectors at the current price for long-term gains. Also, there are some bottom-up buying opportunities in the speciality chemical space as well.

Recently, PSU as well as rail stocks have picked up momentum. What is driving the rally in these 2 sectors?

Both these sectors had been undervalued for long and hence, we are seeing fresh long positions as NIFTY is very near to touching a new high & these mentioned sectoral stocks are still down 10%-20% from their peaks. Hence, all value investors are buying in these sectors at current levels.

Any sector(s) which you think investors can pare their holding as well move towards record highs because it might have already run up?
In my view, retail investors may shift from large banks to undervalued IT stocks from a three to five-year perspective. This strategy will most likely create an alpha on their current investment portfolio.

Also, investors may exit from high P/E stocks as they might face some time correction going forward.

Should one consider rejigging their portfolio as markets create history?

Yes, during this possible rejig of a portfolio, investors should keep higher weightage for IT & pharma stocks along with some undervalued midcap banks.

Keep this portfolio weight for at least three to five years to outperform all broader indices.

How do you see export-linked sectors faring in the near future?

Till now, most of the export-oriented sectors have underperformed in the broader markets. But now this trend may reverse, as most of the negatives are already priced in these sectors at current levels.

Your biggest upgrades or downgrades post Q2 results? or your take on September quarter earnings and how will December quarter pan out?

Post Q2, I am bullish on IT sectors as most of the negatives are already priced in. Also, even if we have a recession in the Western World, we will see more outsourcing to Indian companies. Hence at current levels, most IT companies offer a good value buy proposition.

Now that bulls have again taken control of D-St, do you see more IPOs making their comeback to the Street? We have already seen a few in Oct-Nov. Any particular IPO(s) which you are looking forward to?
Most IPOs had done well except

Green Energy. In my view, even going forward this outperformance of IPOs will continue as we have enough liquidity in the markets.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)