(Reuters) - Indian equity markets are likely to continue to perform well on the back of strong macroeconomic fundamentals as well as positive earnings outlooks for companies, the chief investment officer of Baroda BNP Paribas Mutual Fund said on Thursday.
"I think Indian equity markets have done well in recent times based on positive economic and earnings outlook," Sanjay Chawla, CIO, Equity at the firm said in an interview on Reuters' Trading India chatroom.
"I think the same trend is likely to continue, notwithstanding some global factors."
Indian markets have outperformed the MSCI Emerging Markets so far this year and Chawla said part of the reason was the domestic economy's strong underlying performance.
"The only difference is the wide valuations gap between MSCI India and MSCI EM. It is at historic high," he said.
Chawla said India may underperform if the earnings recovery in other markets is faster, but that did not seem likely right now.
"If the flows come back to EM, I think next year could see DM (developed markets) to EM trade play out," Chawla said.
"Then India may receive positive flows. That may provide some relief to the Indian market from the sell-down that we have witnessed year to date."
Chawla said he was most cautious about the oil sector as he believes the capital allocation in these companies was not very efficient and given their co-relation with volatile crude prices.
He however sounded bullish on banks.
"Recent differential in performance (between large- and small-caps) is the outcome of the potential earnings upgrades in the banking sector, predominantly large caps. We continue to see the banking sector doing well," he said.
On new-age technology firms, Chawla said companies with visibility of profits in the foreseeable future may attract institutional investor interest, while the others would continue to decay, especially with cash burn rates continuing to be high and excess liquidity drying up.