Anand Rathi’s Neeraj Gaurh advises investors to reduce small-cap holdings while focusing on large-caps and select banking stocks. The brokerage warns that while the market remains supported by corporate earnings, geopolitical risks could trigger inflation if crude oil prices consistently exceed $90 per barrel.
Detailed Coverage
Neeraj Gaurh, director at Anand Rathi Share and Stock Brokers, has advised investors to adopt a more selective approach to equity portfolios as the Indian market navigates through FY27. The current market stance suggests that while the long-term thesis remains driven by earnings growth, small-cap stocks currently carry higher risk due to their tendency to sharply amplify market volatility compared to their large-cap counterparts.
Banking and Large-Cap Focus
The brokerage highlights that large-cap stocks and specific segments within mid-caps currently offer better valuation comfort. Private banks are identified as a preferred area of interest, supported by an improving credit cycle and strong earnings visibility. In contrast, the firm maintains an underweight position on the real estate sector and the broader information technology (IT) basket. Regarding the IT sector, recent performance is characterized as a tactical relief bounce rather than a fundamental turnaround. The firm notes that even after price corrections, domestic IT stocks often trade at valuation premiums compared to global peers like Accenture, and the long-term impact of artificial intelligence on outsourcing demand remains an unresolved structural challenge.
Geopolitical and Macroeconomic Watchpoints
The market outlook remains anchored to a normalized nominal GDP growth rate of 10% to 10.5%. While the Indian equity market has shown resilience to geopolitical tensions in West Asia, investors are advised to monitor crude oil prices closely. A sustainable breach of the $90 per barrel mark for crude oil is identified as a potential trigger for inflationary pressure, which could lead to elevated global bond yields and disrupt the expected double-digit earnings growth for the fiscal year.
Sector Trends and Institutional Flows
Pharma sector volatility, recently linked to discussions around US tariff policies, is viewed by the firm as a reaction to news headlines rather than a fundamental change in business prospects. Meanwhile, capital goods and industrials remain preferred overweight sectors. Institutional investor behavior is expected to be mixed; while Foreign Institutional Investor (FII) flows remain tactical and dependent on rupee stability, Domestic Institutional Investor (DII) flows are projected to remain steady, supported by consistent retail participation through systematic investment plans. Investors may continue to monitor FII reallocation patterns and the rupee's stability as key factors that could influence market direction in the coming months.