Market volatility driven by global risks; banks, autos and IT offer buying opportunities: Centrum PMS

The recent market volatility has been primarily driven by global factors rather than domestic economic weakness, according to Manish Jain, Head of Fund Management at Centrum PMS. He advises long-term investors to begin building positions in select sectors instead of waiting for deeper market corrections.

Market Performance and Global Impact

The Indian equity markets have experienced significant pressure, with the Nifty declining approximately 900 points from its recent peak over the past week. Broader markets have witnessed even steeper declines during this period.

Jain emphasized that the volatility was unexpected, particularly given expectations of improving third-quarter earnings. He noted that domestic economic conditions continue to remain stable, supported by steady GDP growth and consistent corporate earnings trends in India.

Global Risk Factors

The market pressure stems from several overseas developments that have created uncertainty among investors. Key global risk factors include:

• Proposed US tariff bill creating trade concerns
• Geopolitical uncertainty in Venezuela
• Regional tensions in West Asia
• General global economic uncertainty

These international factors have overshadowed India's relatively stable domestic economic environment, leading to the recent market decline.

Investment Strategy and Sector Recommendations

Jain advised investors against attempting to time the market perfectly, stating that perfect entry levels are nearly impossible to achieve. For investors with a two to three-year investment horizon, he recommended focusing on sectors where earnings growth is likely to improve and domestic conditions remain supportive.

Regarding the IT sector specifically, Jain expressed greater optimism for large-cap companies compared to mid-cap firms. He noted that the sector has experienced cuts in earnings guidance and valuation multiples in recent quarters, creating scope for a rotation trade. From a one-year perspective, he believes IT could emerge as a "good dark horse" among market sectors.

Key Market Drivers

Jain identified three critical factors that will shape market direction in the coming months:

Interest Rate Stability: The interest rate cut cycle is largely complete, with rates expected to remain stable going forward.

Currency Stabilization: The rupee needs to stabilize near current levels to provide market confidence.

Earnings Growth: Corporate earnings have been downgraded for four consecutive quarters since late 2024, with initial expectations of 12.00% growth translating into actual growth of 6.00-7.00%.

Banking Sector Outlook

Early indicators from the banking sector appear more positive for the current quarter, supported partly by the recent GST rate cut. Jain observed that financial institutions have been reporting higher numbers on a sequential basis, suggesting potential improvement in sector performance.

Upcoming Catalysts

Two major events will serve as important triggers for market sentiment:

• Q3 Results: Third-quarter earnings will be crucial for future market positioning
• Union Budget: Next month's budget presentation will significantly impact investor sentiment

Jain concluded that while global uncertainties continue to create volatility, India's stable domestic fundamentals provide a solid foundation for selective investment opportunities in the recommended sectors.