Market At ‘Full Price’, Prefer Rate-Sensitive, Defensive Plays Amid Valuation Concerns, Says BofA’s Amish Shah

With the markets oscillating between gains and losses, Amish Shah, head of India Research at BofA Securities, has adopted a more cautious stance on Indian equities, citing stretched valuations, a slowing capex cycle, and weak earnings momentum.

Despite India’s long-term structural growth story, markets are currently pricing in too much optimism, according to Shah who expects more muted returns in the near term.

While maintaining a cautious stance, Shah is constructive on rate-sensitive sectors such as financials, real estate, REITs, autos, and internet, which could benefit from a more accommodative monetary policy. With the RBI shifting to liquidity support, rate cuts, and lighter regulation, these sectors could outperform, he noted.

"We were bullish on capex from 2020 to mid-2024," Shah told NDTV Profit in an exclusive interview. However, the brokerage turned cautious in August as the government started rebalancing towards consumption. State-led capex, especially in water, irrigation, and rural infrastructure, is expected to contract, hurting companies exposed to these segments, he added. In contrast, PSU-led capex remains relatively resilient.

At the same time, BofA prefers defensive sectors like telecom, hospitals, and domestic pharma, as they are likely to hold up better in a correction. The brokerage is "not bearish, but markets are fully priced," and returns in the short term could be muted, Shah added.

He warns that tax revenues, particularly personal income tax, may fall short, limiting the government's fiscal headroom. “Despite higher RBI and PSU dividends, there's not much room for aggressive stimulus,” he said.

Shah also highlighted that corporate earnings have been lagging nominal GDP growth, suggesting markets are running ahead of fundamentals. If an investor is looking to invest for seven months then one can expect 1% returns. But if investing for 18 months, maybe 8%. He said that structural compounding is intact, but timing matters.

Despite being cautious he pointed that India remains a key part of emerging market portfolios—just a shade below China in index weightage—but optimism has run ahead of fundamentals. BofA expects Nifty earnings to grow 9% in financial year 2026, up from 5.5% in fiscal 2025.