Large-cap stocks are better positioned to handle market pressure and could rebound sharply, says Shrikant Chouhan of Kotak Securities. The market has been under pressure from FII selling, with BFSI, defence, and healthcare being preferred sectors.

Large-cap stocks are better positioned to withstand further market pressure and could rebound sharply if market sentiment improves, while BFSI, defence, healthcare and hotels remain among the preferred sectors for the medium to long term, said Shrikant Chouhan, Head of Equity Research at Kotak Securities.

Market Under Pressure from FII Selling

Chouhan said the market has remained under pressure for nearly eight weeks, with the Nifty falling from around 24,500 levels to 22,400-22,500. He attributed the weakness mainly to selling by foreign investors and higher global bond yields.

“In fact, we have revisited to the lows of April 2026 when the market was at 22,100 levels,” Chouhan said, adding that the market was under “a lot of pressure”.

He said foreign investors had sold nearly Rs 30,000-35,000 crore in the previous four-five days. He added that better earnings growth and attractive valuations in other emerging markets were making India relatively less attractive for foreign investors.

“For FIIs they always look for those markets where there is momentum as well as where there is growth and multiples are at reasonable level,” he said.

Other Emerging Markets More Attractive

Chouhan said markets such as South Korea and Brazil currently offered a better combination of earnings growth and valuations. He said Korean equities could perform well over the next three to six months, while India's earnings growth remained decent but was relatively less attractive.

Focus on Large-Caps Amid Correction

On domestic equities, Chouhan said large-cap stocks appeared better placed after the recent correction. He said the market was trading at around 16 times FY28 earnings, while nearly 80 per cent of Nifty 50 stocks were trading below 20 per cent of their fair value.

“I am of the view that in this particular market our focus should be more on the large cap companies based on the fundamentals and earnings,” he said.

Chouhan cautioned that mid- and small-cap stocks could face greater pressure if interest rates rise further. Large-caps, however, could see a relatively smaller correction during a market decline and could “bounce back sharply” if positive news flow improves sentiment.

Preferred Sectors for Long Term

Among sectors, Chouhan remained positive on BFSI on the back of strong fundamentals, though he said higher interest rates could create short-term pressure on banks and lending activity.

He also favoured the defence sector, citing expectations of continued government support and higher capital expenditure.

“The other sector on which we are bullish is defense,” he said, adding that the sector could see increased activity ahead of the Budget if the capital expenditure cycle remains on an upward trend.

Chouhan also identified healthcare and pharmaceuticals as medium- to long-term opportunities. He said the tourism sector, particularly hotels, could also see increased traction.

Corporate Earnings and Key Risks

On corporate earnings, Chouhan expects Q2 results to remain broadly in line with expectations. However, he said management commentary would be crucial in determining the market's direction.

“Commentary from the corporates will be very very important and I think that will decide a lot,” he said.

Chouhan identified crude oil prices and bond yields as key risks for the equity market. He said crude remaining around USD 100-105 per barrel could increase inflationary pressure, while a decline towards USD 90 could keep inflation in the range of 4.8-5.2 per cent.

“At this level, we are at an inflection point,” he said, adding that positive developments would be required for the market to recover.

He further said elevated bond yields were encouraging foreign investors to prefer bonds over equities, adding to pressure on Indian markets. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)