Expert view: Challenges persist for the market; positive on these 12 banking, IT, consumer stocks, says SVP of Religare

Expert view: Ravi Singh, Senior Vice President - Retail Research at Religare Broking, believes an uncertain global economic environment, rising interest rates, elevated inflation, and geopolitical risks pose a risk to market sentiment. In an interview with Mint, Singh said he is positive about 12 banking, IT and consumer stocks, including HDFC Bank, ICICI Bank, Axis Bank, SBI, TCS, Infosys, HUL, Bajaj Finance and Persistent Systems.

Edited excerpts:

What are your views on the current market structure? Is there some valuation comfort after the recent correction?

The present market decline has rendered some stocks cheaper, although not all.

Large companies in safe industries like food and pharmaceuticals are still profitable, but smaller ones are no longer so.

Such a divergence provides an opportunity for patient investors, although caution is also required, considering the economic challenges.

What key challenges can keep the bulls under check?

Several challenges could keep bullish market sentiment at bay. First, the global economic environment is still uncertain, with worries about a possible economic slowdown in top economies such as the US and Europe.

Also, rising interest rates, elevated inflation, and geopolitical risks, particularly those following the Russia-Ukraine and the Israel-Palestine conflicts, continue to act against investor sentiment.

How should we play the mid and small-cap segments?

Caution is the key to navigating the mid-and small-cap segments. Investors should reduce exposure to weaker stocks by removing underperforming or fundamentally weak companies from their portfolios.

Sticking high-quality names with strong fundamentals, good growth prospects, and a competitive edge in their industries is crucial.

Given the volatility in these segments, you should invest in companies with robust balance sheets and a proven track record.

By focusing on solid, well-managed businesses, investors can better weather the ups and downs of this space while positioning themselves for long-term gains.

How can an economic slowdown in the US impact the Indian stock market? What sectors could be worst affected?

The Indian stock market would be hit in several directions if the United States had an economic slowdown.

India imports various goods and services from the US; therefore, during a recession, demand for these imports drops.

The US has been one of India’s largest trading partners. This, in turn, puts pressure on Indian companies that are heavily dependent on the US market for their earnings.

The IT sector could be especially strained as US firms may reduce discretionary expenses like IT services and contracting out.

Similar effects could be experienced in the auto and auto components sectors, which are export-oriented.

Moreover, capital flows from emerging markets such as India may be repatriated if America’s economy slows down, with investors looking for safe havens. This could lead to local currency depreciation and a decline in stock markets.

Is it time to stay cautious and focus more on value and less on growth?

Now is a good time to be wary and emphasize value rather than growth in your investment strategy.

When markets are at high levels, the possibility of a correction or downturn increases, making concentrating on the companies with solid fundamentals critical.

These businesses have shown consistent earnings and solid balance sheets and have proven their ability to sustain themselves during economic challenges.

Investing in such stable and established businesses is safer in an unpredictable market since they can withstand the worst-case scenario and grow stronger during tough times.

On the contrary, though high-growth stocks offer the potential for rapid gains, they could also bring increased risk, especially under uncertain economic conditions.

These stocks generally trade at pricey valuations compared to their expected future financial performance, which may be unreasonable given market situation changes or economies' slowing down.

What stocks should we bet on from the banking space?

HDFC Bank, ICICI Bank, and Axis Bank stand out among private sector banks, known for their strong balance sheets, robust credit growth, and good governance.

These banks continue to hold up well in the current market environment.

In the public sector, the State Bank of India (SBI) is particularly noteworthy for its strong capital base, improved asset quality and extensive reach across India.

Bajaj Finance remains a key player in the broader financial space. It excels in consumer banking with a dominant market position and an expanding digital footprint, making it a strong contender in the sector.

Do you see some value buys in the IT sector? What stocks should we consider from the sector?

Because of digital transformation, cloud adoption, and a bigger requirement for cybersecurity, the IT industry will remain a long-term growth story despite the short-term challenges.

On the other hand, valuations have been adjusted downwards recently, meaning there are opportunities to buy good names at higher prices in the market.

Due to their strong history, diversified service portfolios, and powerful customer relations, Infosys and TCS still make it to the finals.

Mid-market IT firms like Persistent Systems present value due to their concentration on specific areas, such as digital engineering and enterprise solutions, where discretionary spending cuts are less likely to affect them.

What are your preferred consumer plays?

Businesses with a firm brand name, a broad distribution base and affordable prices are usually successful in the consumer market.

Hindustan Unilever (HUL) remains a favourite stock due to its leadership in FMCG and cost-advantage initiatives to absorb inflationary pressures.

Titan has positioned itself well in the consumer durables market through its strong brand presence in luxury and watches and its expansion into new areas such as garments.

Moreover, investors may consider other companies like Dabur India and Marico because they hold large portfolios in the health and wellness space, with this sector still experiencing high demand post-COVID.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.