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India is benefitting from the TINA (there is no alternative) factor, says Mahesh Nandurkar, India Strategist at Jefferies, as foreign investors make a comeback to the market after relentless selling until June 2022.
“Market momentum is strong, aided by robust FII (foreign institutional investment) inflows. But, investors need to differentiate between market movement and economic fundamentals,” Nandurkar said in an interview with CNBC-TV18.
From a 6-12 month perspective, Nandurkar reiterated a cautious view on the market.
According to him, strengthening of the dollar, shrinking of the US Federal Reserve’s balance sheet and rising interest rates are not supportive on a valuation standpoint.
“Valuations are becoming uncomfortable,” he said.
In this market setup, Nandurkar believes domestic consumption is a good story.
“Urban consumption stocks like hotels and autos are a strong Overweight for us. Staples is a good defensive bet despite rural demand not picking up well,” he added.
As we look forward to next 6-12 months, nominal GDP growth will stay elevated amid inflation, and that, according to Nandurkar, is a good environment for staples.
“FMCG (fast moving consumer goods) companies will report good nominal revenue and PAT (profit after tax) growth,” he explained.
When it comes to the information technology sector, he believes that the risk-reward equation is not favourable for IT stocks.
Jefferies’ view is that the unemployment rate in US needs to rise for wage pressures and inflation to cool down.
“Federal Reserve will have to act accordingly. Thus, risk- reward is not favourable for IT stocks. That said, it is good time to get into IT stocks only if one believes in the continued market strength.”
According to Nandurkar, another sector that shows promise is capital goods, even when the sector is far from a broad-based capex recovery.
“Defence, industry automation and ESG-related capex plays have been reporting good numbers. Investors should look at selective stocks in this basket,” he said.
ESG is short for environmental, social and governance.
