Indian equity markets may be better positioned than many investors believe, provided geopolitical tensions ease and macroeconomic conditions remain supportive, according to market veteran Ambareesh Baliga. Speaking to ET Now, Baliga expressed optimism about the market's medium-term outlook, citing hopes of a diplomatic breakthrough between the United States and Iran, resilient corporate expectations, and the potential support of a normal monsoon season.
Geopolitics Holds the Key
Baliga believes that markets are currently pricing in a considerable amount of uncertainty surrounding the ongoing US-Iran tensions. However, he sees limited downside from current levels.
"In fact, the way I look at the markets is that I do not see too much downside because there is still hope—quite a strong hope—that there will be some sort of accord between Iran and the US. Hopefully, by June 14, which is President Trump's birthday, they should be able to sign off on an agreement."
According to him, such a development would be highly positive for global and domestic markets. A decline in crude oil prices and a stronger rupee could significantly improve investor sentiment and ease inflationary pressures.
Baliga noted that analysts and investors have already tempered expectations for Indian corporates over the next two quarters, reducing the risk of major disappointments. If geopolitical concerns ease and monsoon conditions remain reasonably favourable, he expects markets to perform well through the festive season and possibly until year-end.
Asian Paints Stages a Strong Comeback
Among consumption and construction-linked stocks, Baliga highlighted Asian Paints as a standout example of a company that has successfully weathered competitive pressures.
He pointed out that market sentiment had become excessively negative after the entry of Birla Opus into the paints segment. However, Asian Paints chose not to engage in an aggressive competitive response.
"The amount Birla Opus was spending on publicity and marketing was enormous. At that point, Asian Paints did the right thing by staying in the background for a while and allowing Birla Opus to go out and splurge."
Baliga observed that advertising intensity from the new entrant has moderated in recent quarters, while Asian Paints appears to have maintained its marketing and sales strategy effectively. He believes the company's earnings performance demonstrates the success of that approach.
"I would be quite positive on Asian Paints. In fact, I have a price target of about ₹3,400. It should be achieved over the next six to nine months."
MSCI Rejig Impact Overshadowed by Market Weakness
Discussing stocks added to the MSCI index, including Federal Bank and Indian Bank, Baliga noted that index inclusion typically attracts buying interest. However, the broader market weakness appeared to have diluted the positive impact.
He attributed the day's decline partly to volatility associated with MSCI rebalancing and the triggering of stop-loss orders during the closing session.
Bullish on Metals, Especially Steel and Aluminium
Baliga remains constructive on the metals sector, particularly ferrous metals and aluminium producers.
"Metals, in fact, I have been positive on for a while."
Within the ferrous segment, he favours Tata Steel and SAIL, while in the non-ferrous space he prefers aluminium-focused companies such as Hindalco and NALCO. However, he believes the rally in zinc and copper-focused names may have largely played out.
"If you ask me about something like Hindustan Zinc, the run is more or less done. At these levels it is fully priced."
Caution on FMCG and Consumption
While acknowledging the long-term attractiveness of consumption-driven businesses, Baliga expects some near-term challenges for the sector.
Rising oil prices, inflationary pressures and the possibility of interest rate hikes could weigh on consumer spending over the next one to two quarters. As a result, he recommends a measured approach toward FMCG and consumer goods stocks for the time being.
Private Banks Offer Better Risk-Reward
Baliga believes private sector banks are now more attractive than their public sector counterparts after several years of relative underperformance.
Although PSU banks delivered strong returns over the past 18 months, many have undergone corrections since then. Meanwhile, leading private banks appear better positioned for a recovery.
"At this point in time, I would be more bullish on private sector banks, especially banks like HDFC Bank."
He also expressed confidence in ICICI Bank, Axis Bank and Kotak Mahindra Bank. Among smaller lenders, IDFC First Bank stands out in his view.
"I see this stock bouncing back to levels of ₹90-95, possibly over the next nine to twelve months."
IT Recovery Still Some Distance Away
The recent bounce in information technology stocks does not convince Baliga that the sector's challenges are over.
He expects concerns around artificial intelligence, margin pressures and future order flows to continue affecting the industry for at least the next few quarters.
"It is only a temporary sort of bounce. I see this continuation for at least the next three to four quarters."
While he is not ruling out opportunities in technology, he would prefer select mid-cap IT companies over large-cap names when the time comes to revisit the sector.
Traders Advised to Stay Flexible Amid Volatility
With market volatility elevated, Baliga urged traders to be cautious with position sizing and stop-loss levels.
"The stop losses one should keep on days like these should be much deeper than normal."
He noted that many traders had seen their stop-loss levels triggered during the day's sharp swings and suggested that investors either reduce position sizes or widen risk parameters during such periods.
Despite the turbulence, he remains optimistic about the market's near-term direction and expects a potential rebound in the next trading session.
Renewable Energy Theme Remains Intact
Baliga continues to favour renewable energy companies, arguing that recent geopolitical developments have reinforced the importance of energy security worldwide.
"The focus on renewables will continue for much longer than what is being seen right now."
He believes the government's renewable energy targets are likely to be extended beyond existing timelines and recommends accumulating quality renewable energy stocks such as Waaree during market corrections.
EV Transition Could Accelerate After Energy Shock
On the automobile sector, Baliga sees electric vehicles emerging as major beneficiaries of the current energy environment.
According to him, rising fuel prices and concerns over energy security could accelerate consumer adoption of EVs, much like demonetisation and the pandemic accelerated digital payments in India.
"This energy shock will do for EVs what demonetisation and Covid did for online transactions."
Companies that are able to expand their EV offerings rapidly, such as Tata Motors, could gain a significant competitive advantage in the years ahead, he said.
Outlook: Optimism with Selective Positioning
While acknowledging risks from inflation, geopolitics and weather-related uncertainties, Baliga remains constructive on Indian equities. His preferred sectors include metals, private sector banking and renewable energy, while he advises caution toward FMCG and large-cap IT stocks in the near term.
