ETMarkets Smart Talk: FMCG and IT stocks offer comfort in valuations compared to historical valuations: Vipul Bhavar

“FMCG and IT stocks are often considered defensive investments, offering protection against market volatility,” says Vipul Bhowar, listed investment director, Waterfield Advisors.

In an interview with ETMarkets, Bhauwar said: “Both sectors offer comfort in valuations today compared to their historical valuations, but growth seems a few quarters away,” Edited excerpts:

Will fiscal prudence be challenged in the third term of the Modi government and the focus will shift to populist measures?
The third consecutive term of the government is expected to bring strong stability and continuity, which will strengthen the market.

Populist policies will be given priority to ensure victory in the coalition government. Key departments of the cabinet, especially those related to finance, defense and infrastructure, will be closely monitored.

There could be market volatility in the short term as investors adjust to the new Cabinet and its policies.

After the 2024 elections, policy reforms will prioritise economic and livelihood issues, with an emphasis on reviving demand, generating employment and maintaining fiscal prudence.

Despite potential pressure to increase spending, the government is expected to remain committed to fiscal responsibility. The main objective is to achieve the deficit target, aiming to reduce the deficit to 4.5% of GDP in FY26.

Given the fact that we are hitting new record highs after the recent decline, can we say that the market has bottomed?
Predicting market movements can be challenging, but markets prioritize fundamentals and relative valuations. India’s macro fundamentals are undeniably strong.

The essential alliance India needs is one that effectively unites Bharat and India, farms and factories, small cities and big tech.

Which sectors can perform well in the new system? FMCG and IT stocks have seen a rally recently. What are your views?
The key focus areas/areas for transformation and progress would be

– Automotive and Auto Components: Driving innovation in electric vehicles and advanced infrastructure

– Financial Services: Empowering financial inclusion and digital payments

– Infrastructure Development: Shaping the Future through Construction, Real Estate and Engineering

– Renewable energy and sustainability: Leading investments in solar, wind and other green technologies.”

– Export-oriented sectors: enhancing their production-linked incentive schemes to improve competitiveness.

FMCG and IT stocks are often considered defensive investments, offering protection from market volatility.

Both sectors offer comfortable valuations today compared to their historical valuations, but growth appears to be a few quarters away.

Railways, PSUs and PSEs rallied ahead of the election results. Do you see a correction in some of these sectors and how should investors who have already invested in them do their investments?
The PSU basket has undoubtedly shown remarkable growth last year. The government should continue to actively support these sectors through strong policies and investments.

Investors should prefer quality stocks with strong fundamentals and capable management rather than relying only on the overall performance of the sector.

What should investors avoid given the election outcome, which may not be the ideal scenario?
It is important to prioritize long-term strategies and fundamentals over impulsive decisions based on speculation or emotional reactions.

Focus on the overall economic trajectory and policy continuity, not on immediate market reactions.

Also, avoid concentrating investments in a single sector or asset class. Maintain a diversified portfolio to minimise risk and maximise returns.

FIIs had gone net short before the election results. How are they looking at India for long term investment? Have you had a chance to talk to some FIIs?
Foreign institutional investors (FIIs) are affected by global economic trends, regulatory amendments, relative valuations and political developments.

Throughout history, FIIs have been attracted by our country’s expanding economy and strong stock market performance.

FIIs taking net short positions ahead of the Indian election results could be a sign of uncertainty or prudence. It is important to recognise that their short-term actions may not necessarily reflect their long-term outlook.

Is it time to reshuffle the portfolio? What is the ideal asset allocation one can look at in the 30-40 age group?
In the past financial year, the proportion of mid- and small-cap stocks has increased significantly in a portfolio that combines large, mid- and small-cap investments.

It is recommended to rebalance the portfolio to re-align it with its strategic weightings and take advantage of this situation.

A balanced allocation would include 70% in equities and 30% in debt instruments such as fixed income, REITs or INVITs.

This allocation is designed to strike a balance between growth potential and risk tolerance, especially at this stage of life.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)