Sandeep Neema, CIO and Director- Equities at PL Asset Management, says resilient domestic growth remains a key positive for the market. However, geopolitical tensions, commodity price volatility, and any slowdown in global growth remain key risks. In an interview with Mint, Neema said inflation and interest rate trajectory, US Federal Reserve’s policy decisions and signals on monetary easing, foreign capital flow, and domestic earnings growth will remain key triggers for the Indian stock market in the near term. Among the sectors he is positive about are banking and finance, defence manufacturing, railways, and renewable energy. Edited excerpts:
What is your near-term outlook for the Indian stock market?
The near-term outlook for equities in India remains constructive, supported by resilient domestic growth, improving corporate balance sheets, and sustained public capex.
However, markets are likely to remain range-bound with bouts of volatility as investors assess global macro conditions.
Key triggers will include the trajectory of inflation and interest rates, signals from the on monetary easing, the direction of foreign institutional investor flows, and the pace of domestic earnings growth.
On the risk side, geopolitical tensions, commodity price volatility, and any slowdown in global growth could weigh on sentiment in the near term.
Has the recent correction brought valuations to fair levels?
Indian equity have moderated somewhat following the recent consolidation, particularly in the large-cap segment, where valuations are now closer to long-term averages.
However, parts of the mid-cap and small-cap universe still trade at a premium relative to historical norms, reflecting strong domestic liquidity and growth expectations.
Overall, the market appears fairly valued from a medium-term perspective given India’s structural growth outlook, though investors should remain selective and focus on companies with strong earnings visibility, balance sheet strength, and sustainable competitive advantages.
Retail investors’ portfolios have taken a significant hit over the last year. Is it time to trim exposure to equities?
Rather than reducing equity exposure in response to short-term market corrections, should view the current environment as an opportunity to rebalance and strengthen portfolio quality.
Market volatility is a natural part of the equity cycle, and investors with a long-term horizon should focus on disciplined asset allocation and systematic investments.
It may be prudent to trim exposure to speculative or overvalued stocks and gradually increase allocation to fundamentally strong companies, particularly large caps, and sector leaders, which tend to be more resilient during periods of market uncertainty.
What sectors can generate alpha in the next one to two years?
Over the next one to two years, sectors aligned with India’s structural investment cycle are likely to deliver superior returns.
Banking and financial services remain well-positioned given strong credit growth and improving asset quality, while capital goods and infrastructure companies should benefit from sustained government spending and private sector investment.
Additionally, sectors such as defence manufacturing, railways, and renewable energy could see strong growth driven by policy support, localisation initiatives, and the broader push toward energy transition and industrial self-reliance.
Is the worst in terms of earnings behind?
The season has been broadly in line with expectations, with domestic-oriented sectors such as banking, infrastructure, and industrials delivering relatively strong performance.
Export-oriented segments like IT have faced some headwinds due to softer global demand, though margins have remained relatively stable.
Overall, the earnings cycle appears to be stabilising, and while growth may remain moderate in the near term, there are indications that the worst of the earnings slowdown could be behind us, provided domestic demand and investment momentum remain intact.
What should be our investment strategy for equities and gold at this juncture?
At this stage of the market cycle, a balanced and disciplined asset allocation approach is advisable.
Equities should remain the core growth engine of portfolios, with investors focusing on fundamentally strong companies in sectors benefiting from India’s structural growth trends.
Gradual accumulation during market corrections, rather than aggressive timing, is likely to be a more effective strategy.
At the same time, maintaining a modest allocation to gold can serve as an effective hedge against global macro uncertainty, currency volatility, and inflation risks, thereby enhancing overall portfolio diversification and resilience.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.