market volatility: ETMarkets Smart Talk: FMCG & IT stocks provide valuation comfort compared to historical valuations: Vipul Bhowar

In an interview with ETMarkets, Bhowar said: “Both sectors today offer valuation comfort compared to their historical valuations, but growth seems to be a few quarters away,” Edited excerpts:

Will fiscal prudence get challenged in Modi 3.0 and focus shift to populist measures?
The government’s third consecutive term is expected to bring robust stability and continuity, strongly driving the market forward.

Populist policies will likely take precedence to secure victory in a coalition setup. Key cabinet portfolios, particularly those related to finance, defence, and infrastructure, will be closely monitored.

Short-term market volatility may occur as investors adjust to the new cabinet and its policies.

Following the 2024 elections, the policy reforms are set to prioritise economic and livelihood issues, strongly emphasising reviving demand, generating employment, and maintaining fiscal prudence.Despite potential pressure to increase spending, the government is expected to stay committed to fiscal responsibility. The main objective is to achieve deficit targets, aiming to reduce the deficit to 4.5% of GDP in FY26. Given the fact that we are hitting fresh record highs after the recent drop. Can we say that the market has bottomed out?
Predicting market movements can be challenging, but markets tend to prioritise fundamentals and relative valuations. India’s macro fundamentals are undeniably strong.

The essential coalition that India requires effectively unites Bharat and India, farms and factories, small towns, and big tech.

Which sectors are likely to do well in the new regime? FMCG and IT stocks have picked up momentum recently. What are your views?
Key focus areas/sectors for transformation and progress would be

– Automotive and Auto Components: driving innovation in electric vehicles and upgraded infrastructure

– Financial Services: empowering financial inclusion and digital payments

– Infrastructure Development: shaping the future through construction, real estate, and engineering

– Renewable Energy and Sustainability: pioneering investments in solar, wind, and other green technologies.”

– Export-oriented sectors: Enhancing their output-linked incentive plans to improve competitiveness.

FMCG and IT stocks are often considered defensive investments, providing a cushion against market volatility.

Both sectors today offer valuation comfort compared to their historical valuations, but growth seems to be a few quarters away.

Railways, PSUs, and PSE rose in the run-up to the election outcome. Do you see derating in some of these sectors and how should investors approach them who are already invested?
The PSU basket has undeniably shown significant growth in the past year. The government must continue actively supporting these sectors through robust policies and investments.

Investors must assertively prioritise quality stocks with strong fundamentals and capable management rather than depending solely on the sector’s overall performance.

Things that investors should avoid doing when looking at the poll outcome that might not be the ideal scenario?
It’s crucial to prioritise long-term strategies and fundamentals over impulsive decisions based on speculation or emotional responses.

Concentrate on the overall economic trajectory and policy continuity, not immediate market reactions.

Furthermore, avoid concentrating investments in a single sector or asset class. Maintain a diversified portfolio to minimise risk and maximise returns.

FIIs were net short in the run-up to election results. How are they viewing India for long-term investments? Have you had a chance to speak to some of the FIIs?
Foreign Institutional Investors (FIIs) are impacted by global economic trends, regulatory modifications, relative valuations, and political developments.

Throughout history, FIIs have been attracted to our nation’s expanding economy and strong stock market performance.

FIIs exhibiting a net short position leading to the Indian election results may signal uncertainty or prudence. It is essential to recognise that their short-term activities may not necessarily reflect their long-term perspectives.

Is it time to reshuffle the portfolio? What is the ideal asset allocation one can look at in the 30–40-year age bracket?
In the past financial year, the proportion of mid-and small-cap stocks in a portfolio with a combination of large-, mid-, and small-cap investments has significantly increased.

It is recommended that the portfolio be rebalanced to realign it with its strategic weight and take advantage of this situation.

A well-balanced allocation would include 70% in equities and 30% in debt instruments such as fixed income, REITs, or INVITs.

This allocation is designed to strike a balance between growth potential and risk tolerance, particularly at this stage of life.

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