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Nilesh Shetty, Portfolio Manager at Quantum Advisors, dismissed fears that the India-European Union Free Trade Agreement (FTA) poses a significant threat to Indian auto stocks. He characterized the market's reaction as an overreaction, stating that actual numbers do not support the widespread concern.
Auto Sector Resilience
Domestic automobile manufacturers, Shetty explained, hold distinct advantages that global players struggle to replicate. These include competitive pricing, superior fuel efficiency, and robust after-sales service networks, particularly vital in mass-market and rural segments. While acknowledging that premium car makers might experience some impact, he does not anticipate substantial disruption for large listed companies like Mahindra & Mahindra Ltd. and Tata Motors Ltd. Shetty suggested that valuations for some auto stocks have already seen sharp upward adjustments, creating potential buying opportunities should a meaningful correction occur.
Banking Sector's Strong Conviction
The banking sector remains Shetty's top conviction play across the broader market. He described current valuations as "very attractive," a level not witnessed in the past two decades. With the non-performing asset (NPA) cycle showing consistent improvement, patient investors are well-positioned to achieve solid returns from banking equities.
IT Services and Textiles Outlook
Looking ahead, Shetty sees relatively better long-term potential in services, especially IT services. Enhanced labor mobility and improved market access within Europe could empower Indian IT firms to better manage costs and expand their operational presence. In contrast, he expressed caution regarding the textile sector. Despite potential for increased exports to Europe, Shetty believes India lacks the necessary manufacturing scale to compete effectively against countries like Bangladesh and Vietnam. Any benefit derived from the FTA, in his view, is likely to be minimal.
Metals Market Dynamics
Regarding metals, Shetty downplayed anxieties surrounding carbon-related taxes. He noted that the majority of Indian steel companies focus primarily on the domestic market. Local demand, fueled by ongoing manufacturing and infrastructure development, continues to be the key driver for valuations in this segment.