What sectors to be overweight on, underweight on, and completely avoid right now? Manish Gunwani answers

Time of India

08-05-2025

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, Head-Equity,, says despite expensive domestic-facing stocks , India's strong macroeconomics and the ' China plus one' theme offer opportunities, particularly in manufacturing exports to Europe and China. Despite a generally cautious outlook, beaten-down financials in India, trading below book value, present an attractive risk-reward opportunity due to the country's strong macroeconomics. While a deep US recession poses a threat to asset quality, the sector offers compensation for that risk. Elsewhere, auto and capital goods appear overvalued.Lots of good things have happened for India in the sense that the dollar has weakened, crude has fallen, RBI has become fairly dovish. I do not expect earnings to be anything great over the next two-three quarters, but there is the strength of the macro in terms of the currency, the current account deficit, inflation, interest rate trajectory, and also the geopolitical narrative.Medium-term, I do think that a lot of things that the US is trying to do are good for India. Now, it may be a very rocky path to get there, but what does the US want? They want to reduce China's current account deficit which could mean manufacturing moving out of China. They want lower energy prices and lower bond yields. Although they may not explicitly say this, they probably want a weaker dollar. So, all this is what India also wants. So, the macro narrative will support the market.It is a fair thing to say that the US will definitely slow down. The extent of that slowdown is very difficult to gauge. It could be right from a mild slowdown to a deep recession, no one can predict that. So, it is not a market where you need to be very greedy. But the chances of macro narrative overpowering quarterly numbers is quite high.I do not think that at the overall headline index level, we will make big returns. But it is all about being nimble and catching the themes that can potentially work in the medium term. There are a fair amount of interesting themes which can work. Nothing is definite. For example, there is this tech platform segment, there is the shift of manufacturing from China segment, there is this beaten down financials segment. Personally, these kinds of themes look attractive from a risk-reward perspective.I am not very positive on global growth or as a corollary even on India growth from a one-year perspective in the sense that there is a range of probability outcome but there is a decent probability that there will be a severe slowdown globally. So, I do not think you can have a very cyclical portfolio at this point of time. Just following up from what you said, the risk-reward in buying anything related to the US economy is not great.If you think about business cycles in three parts – US, India, and the rest of the world – which is Europe and China, the expectations are least from Europe, and China-related stocks and maybe there are some contrarian bets on that cycle which is metals and global auto which are worth owning purely because expectations are beaten down.India has the best macro, but Indian domestic-facing stocks tend to be expensive, but there may be the theme of 'China plus one' expanding from the traditional chemicals to a lot of new segments may work. But yes, anything to do with the US economy is a bit risky, I would think.What I meant was anything which is very cyclical and linked to the US economy is probably risky. But stocks linked with general global exports to Europe and China are quite cheap. They have done nothing for two-three years at least and that part is worth a bet. But I do not think you can be very aggressive because if the US slows down more than we think, then even Europe, China cannot do well, and even India will not do as well as we think.As I said, it is not probably a time to be very cyclical, but I would say that any good manufacturing exporter from India – if the valuations look reasonable – are worth a bet because we do not know. All we know is that it is a once in a generation supply chain shift that will happen. You can be fairly certain that China's current account will go down and it will go down as a mix of exports coming down and imports going up. But safe to say that China's share in manufacturing will go down.Now, who benefits, which category benefits, which country benefits is not exactly clear at this point of time, but as a theme, that is worth looking at. On the domestic side, it is a bit of a consensus view, but the only risk-reward space that looks attractive is financials which are below book or one-time book because India's macro is good. Hopefully, the asset quality will not deteriorate unless the US goes into a very deep recession that risk remains, but at least you are getting paid to take that risk. Auto, and capital goods look expensive to me. So, yes, on the domestic side, beaten down financials is the only really attractive cyclical sector.