In an interaction with Kshitij Anand of ETMarkets, Siddarth Bhamre, Head, Institutional Research at Asit C. Mehta Investment Intermediate Ltd, highlighted that themes like renewables and defence are likely to remain at the forefront of investor interest, driven by structural tailwinds and policy support.
At the same time, he pointed out that sectors such as infrastructure and gas distribution, which have seen meaningful corrections due to their exposure to Middle East dynamics, could present high-risk, high-reward opportunities once the macro environment stabilises. Edited excerpts:
Q) Thanks for taking the time out. The FY26 year returns have turned negative due to geopolitical concerns around West Asia. How do you sum up the financial year?
A) In FY26, our markets absorbed a lot of shocks. It started with the announcement of tariffs by Trump. Markets took that in their stride, but news related to tariffs kept dictating market direction.
The emergence of AI as a potential threat to Indian IT companies, which have been one of the factors driving Indian economic growth, also capped the market’s upward journey.
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And in the last month of the fiscal, this unfortunate and unnecessary war in West Asia broke the market’s back. These three factors have derailed the post-Covid bull run.
However, thanks to domestic liquidity, despite all these issues, markets in FY26 are down by just 5%.
Q) As we head towards FY27, what are the triggers one should keep in mind that could lead to a reversal for bulls?
A) Last year, India’s underperformance was mainly due to high valuations compared to other opportunities. Also, the macro headwinds in the last one year have largely been external in nature.
An immediate end to this war and easing supply pressures leading to a fall in energy prices would trigger a reversal, but it needs to happen soon.
A prolonged conflict will increase the severity of damage to the economy, and then a reversal may not happen as quickly as it can now.
It will be important for the rupee to stabilise against the dollar so that foreign investors gain confidence to invest in India.
Q) Which sectors should be on the radar for investors in FY27? Do you think there are sectors which have already corrected and are now available at attractive valuations?
A) Two sectors which will naturally attract the most attention now are renewable energy and defence. Solar as a theme was fizzling out due to oversupply and had seen a significant correction.
With such levels of dependency, India should accelerate the pace of increasing the share of renewable energy. Needless to mention that companies and sectors related to transmission will also attract attention.
Gas distribution companies and large infrastructure players have corrected significantly due to their dependency on the Middle East. They may correct further if the conflict continues, but so will most sectors.
However, once things stabilise, these names can quickly bring their revenue back to pre-war levels and hence can be high-risk additions to portfolios. It is a risk worth taking.
Q) How should one play gold and silver in the new financial year?
A) Gold and silver have shown extraordinary performance in the last year. Portfolios with exposure to precious metals have done well. However, in the last two months, volatility in these commodities has increased sharply.
Such volatility is not ideal for overall portfolios, and those without exposure are more than a year late in gold and a couple of quarters late in silver. It is difficult to gauge what may transpire in this asset class.
Q) How are we placed against peers in terms of valuations?
A) Year-to-date and over the last year, India has been among the worst-performing stock markets. Relative valuation depends not just on price performance but also on earnings growth.
The effects of this war will likely negatively impact Q4FY26, and so far it appears that even Q1FY27 earnings may be revised downwards significantly.
So recent underperformance may not make India immediately attractive compared to other markets. Also, strategic allocation tends to chase outperformance, which again does not work in India’s favour.
Valuations now look relatively better than a few months ago, but as earnings weaken, so will this valuation comfort.
Q) Will FII flows reverse in FY27? How are you reading flows, both domestic and global?
A) For FIIs, several factors determine exposure to markets. We discussed earnings and geopolitical sentiment, but another key factor is currency depreciation.
High valuations, price correction and increasing currency depreciation have led to FII selling. As these factors reverse, flows should improve, possibly in the second half of FY27.
As for domestic flows, they tend to follow equity performance. Returns over the past two to three years have not been very encouraging, making it difficult to expect a meaningful increase in domestic inflows in FY27.
Market performance has tested the patience of domestic investors. If the market continues to correct, it would not be surprising to see participants exiting.
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. These do not represent the views of The Economic Times.)