Stocks to Buy | Macro Momentum & Portfolio Moves: Shreyas Devalkar’s market outlook

The Indian market is currently witnessing a split in sentiment. While some investors believe that most of the positives, like potential RBI rate cuts and the benefits of stronger India-US trade ties, are already factored into the current valuations, others argue that these catalysts are yet to fully play out. Shreyas Devalkar, in an interview with ET Now, said that wherever there is an established growth story, valuations tend to remain expensive. It's important to closely observe the evolving global trade dynamics, especially with respect to tariffs and comparative advantages between India, China, and other competitors.

The impact of US tariffs on India needs to be seen in a broader context, including how other competing countries are affected. India has clearly benefited from the global shift in supply chains, particularly in electronics and services, as companies diversify away from China. The Make in India initiative is further strengthening domestic manufacturing in areas like solar panels and consumer durables. Many of these segments, especially within capital goods, power, and electronics manufacturing services (EMS), are seeing strong momentum and investor interest, despite high valuations.

Segments such as tourism, travel, and retail continue to do well, supported by strong demand, and are trading at elevated valuations. However, there are areas with potential for revival. Private sector banks, for example, have not regained their pre-COVID valuations, and in some cases, have even seen a de-rating. NBFCs are in a similar position due to slower credit and deposit growth. As interest rates begin to soften and credit transmission improves, these sectors could see renewed investor interest and a rerating.

For long-only investors, capital remains invested regardless of market levels, as today's portfolio reflects yesterday’s prices. Shreyas Devalkar emphasises that investors should realign their expectations. Over the long term, equity returns tend to match nominal GDP growth. While the market delivered strong gains from 2022 to 2024 due to the re-rating of various themes, it may be harder to achieve such high returns going forward. A more measured outlook, based on realistic return expectations and earnings growth, is crucial.

Recent CPI numbers have surprised positively, and liquidity conditions in the system are improving. Monetary policy is turning favourable, with banks and NBFCs transmitting lower interest rates. However, growth is also influenced by fiscal and global dynamics. With fiscal consolidation now in place both in India and globally, and exports still under pressure due to a sluggish global economy, a full-blown recovery may take longer. Hence, investors should approach the current macro environment with pragmatic optimism.

Portfolio adjustments have been made in response to changing fundamentals. Exposure to autos and auto ancillaries was reduced over the last few months as both local and global headwinds led to earnings downgrades. In contrast, allocations were increased in segments of capital goods, especially in the power and electronics sectors, where import substitution and growth are visible. In the consumer space, despite high valuations, selective retail companies were added, reflecting confidence in consumption-driven growth.

India's growth trajectory will be shaped by three major drivers: monetary policy, fiscal policy, and global trade. With interest rates softening and inflation easing, monetary conditions are supportive. However, fiscal tightening and weak global demand act as constraints. Shreyas Devalkar advises maintaining a pragmatic outlook, focusing on sectors with earnings visibility and potential for revival. In the near term, investors should moderate their return expectations while staying aligned with long-term growth trends.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)