The end of financial year 2026 is nigh and stability seems but a distant dream in this last quarter with the Iran war still waging on. From tariff triggers, to AI tremors, and now oil market upheaval, the year has been nothing short of a roller coaster.
Amid all this, Nuvama Securities sounded alarms of heightened volatility for both international and domestic markets and advised to brace for impact.
"Risks loom large as the US labour market is weakening (recession-like) and the US private credit market (~USD2tn) — the key 2020s lender—is facing liquidity issues. This could dampen not just global tech valuations, but also AI capex a la dot-com era. Fed's QE and oil supply resuming is key to normalcy. Else, brace for volatility," the brokerage said in its note.
In the Indian equity space, uncertain and tumultuous global cues are likely to mount pressure. Stuck in the eye of this global storm, Nuvama remains bullish on sectors with reasonable growth and valuation like insurance, internet, private banks, information technology, along with defensive sectors, such as consumer and pharma.
Defensive stocks are shares of companies providing consistent, essential goods and services (utilities, healthcare, staples) whose demand remains largely unaffected irrespective of economic health.
On the other hand, cyclicals like autos, industrials, power, PSU banks and NBFCs get an underweight rating from the brokerage.
However, the brokerage has a basket of large caps that it is betting on, including Reliance Industries Ltd., Infosys Ltd., HDFC Bank Ltd., Nestle (India) Ltd., Kotak Mahindra Bank Ltd., Eternal Ltd., SBI Life Insurance Co. and Tata Motors Ltd.
Nuvama's note highlighted how 40% of the expensive cyclicals such as autos, metals, industrials, power and PSU banks remain more vulnerable to macro risks, while 35% BSE500 in the IT, FMCG, durables, retail, paints and NBFCs space are enduring micro challenges, such as industry transitions. "Hence, overall despite two years of flat returns and policy easing, risk-reward remains unattractive warranting a defensive bias," the brokerage outlined.
Regardless, the selected large cap stocks stand tall in a high valuation environment, according to Nuvama. Infosys, RIL and HDFC Bank have a combined market capitalisation of $400 billion, representing over 80% of the total $630 billion market value of all 11 stocks together.
Strong balance sheets and established market positions of these large caps are expected to act as a hedge against future and on-going market jolts.
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