Expert view: Sandeep Neema, Director and Fund Manager, PL Asset Management, sees compelling opportunities in financials, industrials, energy, and metals at the current juncture. He believes that the Indian stock market can generate healthy returns in the medium term. In an interview with Mint, Neema said the primary determinant of one’s portfolio decisions should not be FPI flow data. Edited excerpts:
Considering the performance in the first half, investors are apprehensive that the year will be a washout year for the domestic market. What is your view?
We would caution against characterising the year as a washout based on the first half alone. The period has certainly been marked by volatility, geopolitical developments, currency pressures, and intermittent profit-booking in heavyweight stocks, which have kept the benchmark indices range-bound rather than trending decisively in either direction.
However, range-bound consolidation following a prior period of strong gains is a normal and, in many respects, healthy market behaviour rather than an indication that the year’s prospects have been exhausted.
We remain constructive on the outlook for the remainder of the year.
Corporate earnings are showing signs of stabilisation, the interest rate environment is becoming more accommodative, and domestic flows continue to provide a meaningful buffer even during periods of foreign institutional selling.
In our assessment, the volatility experienced thus far reflects the cost of participation in a market that is repricing risk, rather than a signal that the year’s opportunity has passed.
Keeping the long-term thesis aside, do you believe the market can still generate healthy returns in the medium term?
Yes, we believe it can. Independent of the longer-term structural narrative around the Indian economy, the combination of current valuations, the earnings trajectory, and the liquidity environment supports a reasonably constructive medium-term return outlook.
This is not to suggest a smooth or linear path; investors should anticipate sharp intermittent corrections along the way.
That said, we believe healthy, double-digit returns over a two-to-three-year horizon remain achievable for investors who maintain discipline through periods of volatility and adopt a selective rather than broad-based approach to the market.
What are the key areas of opportunity in the current market environment? Should investors focus more on defensive sectors?
We would caution against an overly defensive positioning at this stage. In our view, the more compelling opportunities currently lie in financials, industrials, energy and power, and metals.
These sectors are benefiting from improving balance sheet health, rising capacity utilisation, and supportive policy tailwinds, including the ongoing capital expenditure cycle and growing power demand.
Defensive sectors certainly have a role to play in capital preservation, but in a market that we characterise as volatile rather than structurally weak, an excessive tilt towards defensives risks under participation in the eventual recovery.
Our preference is for selective exposure to quality names within these cyclical sectors over a broad shift into low beta defensives.
How should retail investors approach the IT sector? Is it better to invest through the index or stay away from the sector altogether?
This is a sector where we would advise a degree of caution rather than a blanket avoidance. At the aggregate level, the IT sector does not currently feature among our preferred sectors, given weakening growth visibility, softer deal pipelines, and the uncertainty introduced by the broader AI-led disruption to the legacy services model, particularly around medium-term revenue-per-employee economics.
That said, we do believe select names within the sector are well placed to perform, particularly those with differentiated capabilities, stronger deal execution, or early positioning in AI-led service lines, and these could deliver meaningful outperformance even as the broader sector grapples with headwinds.
For retail investors without the ability to differentiate at the stock level, an index-based approach would be the more prudent route, as it mitigates company-specific risk, though it would also dilute exposure to these pockets of relative strength.
Our considered view, therefore, is that this is not a sector for broad-based fresh exposure, but one where a selective, bottom-up approach to identifying the stronger names could still reward investors willing to do the work.
With earnings growth expectations moderating, limited AI-related opportunities, and the possibility of rate hikes, should investors brace for more intense FII outflows?
Some degree of continued or even intensified FII outflow pressure is a reasonable risk to factor into one’s outlook, particularly if global interest rates remain elevated for longer and global capital continues to gravitate towards AI-related opportunities outside India.
That said, we would characterise this primarily as a flow-related risk rather than a fundamental one. The scale of domestic capital, through systematic investment plans and longer duration institutional pools such as PMS strategies, has grown substantially and now plays a far more significant role in determining market direction than it did in previous cycles.
Periods of FII selling have historically created attractive entry points for patient, fundamentally driven capital. We would therefore advise against allowing FII flow data to be the primary determinant of portfolio decisions.
What is your assessment of India’s macroeconomic outlook? Do you see any risks to the growth-inflation dynamics, and what should investors focus on?
Our macroeconomic outlook remains constructive. Inflation has been broadly well behaved, affording policymakers the latitude to prioritise growth support rather than focus predominantly on price stability, marking a meaningfully improved setup relative to recent years.
The principal risks we would flag are external in nature, currency volatility linked to global interest rate movements, and the potential for renewed crude oil price pressure should geopolitical tensions resurface.
On balance, we view the domestic growth inflation dynamic as favourable.
For investors, we would suggest that the focus be placed less on attempting to anticipate every macroeconomic data point and more on positioning portfolios towards sectors that stand to benefit directly from the domestic capital expenditure and credit cycle, as this is where the macroeconomic tailwind is most likely to translate into tangible earnings outcomes.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
