As Indian markets navigate one of their most volatile phases in recent years, investors are grappling with a complex mix of geopolitical tensions, elevated crude oil prices, persistent foreign outflows and slowing earnings growth. Yet, beneath the uncertainty, several structural themes continue to attract capital, ranging from power and manufacturing to defence, auto ancillaries and AI-linked opportunities.
In an interaction with BW Businessworld, Amit Gupta, Head of Equities, PMS at Motilal Oswal Private Wealth, shares his outlook on the evolving market landscape, sectoral opportunities and portfolio strategy in the current environment.
Edited excerpts:
Indian markets rebounded nearly 7 per cent in April after a sharp correction. Do you believe markets have largely priced in geopolitical and oil-related risks?
Markets have priced in a certain limit of appreciation in crude and, as a result, depreciation in the rupee. Also, it has discounted the resultant impact of this on Q1FY27 earnings. However, if this situation continues for long and crude prices sustain beyond USD 125 per barrel, markets can get nervous again.
Markets have factored many negative news flows in the last couple of years, like Trump tariffs, outflows due to high valuations and not having direct AI-specific investment opportunities. In fact, the rising Japanese bond yields also impacted us due to the unwinding of the carry trade. However, opportunities are also arriving as the Defence theme participated really well amid the Indo-Pak conflict.
Power has emerged as a high-conviction theme despite macro uncertainties. What structural drivers give you confidence that this is not just a cyclical trade?
Power is a structural investment theme for 2026 and going ahead. Last year, electricity demand was quite low at 1 per cent, with the onset of heatwaves, peak power demand has already reached 256 gigawatt (GW) this year, while it was 242 GW last year. We expect a 5 to 6 per cent surge in electricity demand this year. Uncertainty around monsoon with El-Nino possibility could also drive more heat and hence the requirement for ACs, etc., which will sustain the elevated Power demand.
In addition, the capex of USD 30 billion in data centres and industrial capex is likely to keep the demand structural for power space in the coming years. India aims to achieve 500 GW of non-fossil fuel energy capacity by 2030. This involves massive investments in solar, wind and green energy corridors.
Auto ancillary companies are increasingly being seen as export-led growth stories. What differentiates the current opportunity from previous cycles?
The auto ancillary sector is the beneficiary of robust structural demand upcycle, significant EV transition opportunities and global supply chain diversification. Along with a vibrant domestic market, there is a great opportunity for the auto ancillary space in the export market.
The Indian auto ancillary industry is projected to reach USD 200 billion by 2030. The new free trade agreements (FTAs) with the UK, Europe, New Zealand, Oman, etc., are likely to be signed in FY27, which should open tremendous opportunities for exports like auto ancillary, textiles, etc. The Indian government is looking to achieve a USD 1 trillion export target for manufactured goods in the coming years.
After a strong run in PSU banks, you prefer mid-sized private lenders. Is this a valuation call or a shift back towards asset quality and consistency?
We have seen good FDI flows coming into mid-size private banks. With Gold prices surging in the recent period, the gold financing theme has also done well. South-based private banks that have 25 to 35 per cent exposure to Gold loans have benefited from the current Gold cycle. Hence, they have moved into a rerating cycle with certain banks posting ROA of even 2 per cent, ROE in excess of 15 per cent and NIMs above 3 per cent. SME, retail and gold loans are the primary drivers, with some mid-size private banks achieving deposit growth of over 16 per cent.
IT stocks are trading closer to long-term average valuations, but execution concerns persist. How should investors approach this risk-reward trade-off?
IT stocks are in a transition period where order book exposure towards generative AI is increasing, even though large-cap IT companies have seen only 7-8 per cent conversion of the book into AI so far. We believe opportunities would come in midcap IT companies that have been more aggressive in increasing AI exposure through inorganic routes. AI has moved from experimentation to execution, becoming the key catalyst for growth.
Heavy investment in training is needed to upskill staff in AI and advanced cloud technologies. Valuations of IT companies are definitely supportive currently, but growth would be seen with more AI exposure. While AI disruption is creating immediate pressure on revenue and staffing, it is also expected to drive margin gains in the coming years.
In volatile markets, does timing cash deployment matter more than maintaining long-term conviction, or is trying to time the market counterproductive?
Yes, cash deployment can be done to the extent of 10-20 per cent when markets are weak. But we should also understand that a couple of years have already been spent now in the current market consolidation, where FIIs have sold significant sums of more than USD 45 bn. That is why the markets are showing a tendency to absorb these outflows now, with beaten-down mid and small caps participating better. One should remain in the market and look for a longer period of investment rather than timing it.
In the current environment of earnings uncertainty and global risks, how do you define a “quality business” beyond the usual balance sheet metrics?
High-quality businesses are generally defined by strong competitive advantages, consistent cash flow, low debt and high returns on capital. When uncertainty in the economy increases, the quality businesses and leaders of the segments tend to increase the market share. In tough times, it goes beyond the product, also cultivating a culture of continuous improvement and building long-term trust with stakeholders.
AI is emerging as a major theme globally, but India’s listed universe has limited direct exposure. Where do you see credible, investable opportunities domestically?
India is doing significant capex in data centres as big data units are required for AI usage. Various industries are using AI for various applications, for example, fraud detection and risk management in BFSI, diagnostics, telemedicine and remote patient monitoring in the healthcare space; inventory management, chatbots in retail and ecommerce; supply chain management, robotics in manufacturing. Along with this, ancillary industries related to data centres like gensets, optical fibres, wire and cables, power generation and transmission, etc are also going to flourish.
What would be an ideal portfolio allocation strategy today across sectors and market caps for investors looking to balance growth with downside protection?
We believe that as largecaps are more attractively valued, a near 50-60 per cent weightage should be given to largecaps followed by Midcaps and Smallcaps. An ideal market cap allocation strategy balances growth and stability based on risk appetite, typically featuring a "Core-Satellite" approach (70-80 per cent core, 20-30 per cent satellite). For moderate investors, a standard mix is 50 per cent largecap, 30 per cent midcap, and 20 per cent smallcap. Also, there is a structural shift towards manufacturing, financials, energy and AI-related themes. |
