Equity returns will be low this year – and perhaps even lower than fixed deposit rates – if one holds positions for 12 months, said Venugopal Garre, MD at Sanford C Bernstein, in an interview with Business Standard.
"We are neutral on Indian equities from a 12-month standpoint as we have a broad expectation of a flat index. However, given weak macroeconomic (macro) data points, high valuations, and rising rates, we were earlier calling for underweight in the first three months of this calendar year," he told the market daily.
However, with rates closer to a peak, macro closer to a bottom, earnings holding up, and valuations having corrected from the peak, he expects a rebound in Indian equities, with the Nifty50 index moving to an 18,000–18,500 level this quarter. As per him, much of this rebound call is tactical, as “we see risks capping the upside”, the report said.
The market expert expects a lot of volatility within 12 months; hence, periodic churn and assessment will be required to generate better returns, it added.
However, this makes it more challenging, as there will be limited directional support. Closer to the end of this calendar and the early part of next year, Garre sees room for a larger market catch-up, the report said. By then, the macros would have started to improve, global risks would have unraveled, and there will be more clarity on interest rates, stated Garre.
Commenting on preferred sectors, he said that it is not easy to identify stocks since most are still above the band in terms of valuations.
"Most calls are hence, relative where one has to assess growth, downside risks, and valuations. From that perspective, we see financial as attractive; we have a mild overweight on information technology services as a contrarian pick. Among smaller sectors, we have an overweight on cement, real estate, and consumer appliances. We are underweight on consumer discretionary (excluding automotive), consumer staples, commodities, industrial, and utilities," he told BS.
Garre believes there is room for some reversal in FII flows.
He doesn’t see material enough inflows to move Nifty beyond the levels of 18,500. It is the extent of economic recovery in India and globally that matters, he added.