Edited excerpts from a chat:
How are you currently positioning your portfolios amid global headwinds related to tariffs and domestic tailwinds from GST, rate cuts, etc?
In the last 6-9 months, we strongly urged our clients to do two things- First: shift away from mid/small caps to large caps because of valuation concerns and second: focus on domestic economy facing sectors like BFSI, Infra, insurance, capital markets etc and be underweight IT and staples. These have benefitted our clients. Overall, our bias towards domestic economy facing sectors remains. We are selectively beginning to see opportunities in the mid/small cap space as well.
Policies have increasingly focussed towards supporting growth in the past 12 months with Income tax cuts, rate cuts, and GST rationalisation. These will each boost growth over an extended period of time. Pay commission could be a big theme in CY26.
Sensex, Nifty have failed to beat bank FD in the last one year. Do you think that most of the time correction is behind us and that the growth trajectory should be back soon?
Market returns will always be lumpy rather than linear. Periods of high returns will alternate with periods of moderate returns. Getting the timing right for these periods is very difficult and mostly not even worth attempting. Investors who try to time these market cycles may miss out on large market rallies and this will likely be costlier in the long term.Expensive valuations and low earnings growth had been a theme in FY25 and we had repeatedly highlighted these concerns. However, we currently see markets as being fairly valued and expect Nifty to rise by 10%. A new high by the end of the fiscal year is strongly probable.
FII selling has created pressure on Indian equities. We saw Q1 earnings season doing little to change investor opinion. When do you think we can expect broad-based double-digit earnings growth once again?
DIIs’ monthly net purchases have exceeded Rs. 60,000 cr in 6 out of the 8 months in CY2025 (including August MTD purchases of Rs. 76,000 cr). DII buying has far outstripped FII selling. We believe the growth outlook at aggregate level will improve from here, as earnings of heavy-weight sectors like BFSI, IT, and consumption have almost bottomed out and should improve from H2FY26. For HDFC Securities’ institutional equities coverage universe, projected earnings growth for FY26E and FY27E stands at 11.7% and 16.4%.
Which sectors do you believe will lead the next leg of market growth, and what’s driving your conviction in them?
Our preferred sectors are large banks, auto, consumer discretionary, real estate, cement, and capital goods. Domestic fundamentals continue to be fairly strong and these sectors would continue to see strong earnings growth. We remain underweight on oil & gas, mid-cap IT, small banks, and metals.
It appears that HNIs are taking a lot of interest in newer assets like REITs and InvITs to earn high yields in a declining interest rate environment. Do you think 7-8% yields are sustainable in the long run from these two assets?
Overall, we are positive on both asset classes. High distribution yields of around 6% for REITs and 9-11% for InvITs make a strong case for allocation to these asset classes and provide downside protection to total returns. A further decline in long term bond yields will also support these asset classes.
Investors should note that unit prices of InvITs and REITs have exhibited a much higher volatility than the NAV of the units or distribution of cash flows. InvITs have debt-like characteristics, but investors have tended to be momentum chasers. In InvITs, we recommend a contrarian approach where they should buy in case unit prices fall significantly below NAV while booking profits when unit prices rise well above the NAVs.
In REITs, total returns will move in line with the outlook on commercial real estate. Currently, absorption of office space is likely to outstrip the supply over the next 2-3 years which could boost returns for REITs.
If you had Rs 10 lakh to invest in the market right now, how would you spread it across gold/silver, equities and debt?
Asset allocation depends on risk profile, investment horizon etc. For a moderate risk-profile investor, we recommend a 50% equity allocation with 45% in debt. Gold and silver have rallied sharply in 2025 and there could be volatility in the near term. Hence, we recommend that Gold and silver should be at 5% of the portfolio but this allocation could slowly increase to as high as 10% over the next 2-3 years. For an aggressive investor, equity allocation could be at 65-70%.
Lastly, what’s the one contrarian idea you’d back for the next 12 months?
Our preference continues to be for large cap stocks over mid/ small caps. Investors tend to agree with the hypothesis but when discussion moves to stock level ideas, investors mainly want small caps. The bias is so strong that suggesting large caps feels like a contrarian idea. Our analyst remains positive on the infrastructure and real estate sectors, which could rebound. Investors could also selectively bet on those high quality small/ mid cap ideas where valuations may have reached attractive levels.
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