The Indian market is seeing a cyclical rotation as investors are moving money into sectors which had underperformed over the last two to three years, like information technology and FMCG, said Ambit Investment Managers Pvt. Ltd. Managing Director Dhiraj Agarwal.
"It started with IT in June and then FMCG and now money is slowly moving into private banks," he told NDTV Profit.
The "winds of change" is triggered by favourable catalysts like government's budgetary support to consumption, earnings growth in IT companies that have beat estimates, and attractive valuation in private banks, he said. Recent domestic economic data and commentary from companies suggest an uptick in consumption.
Dhiraj Agarwal, MD at Ambit Capital (Source: Company)
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However, high valuations in Indian and US equities, that have enjoyed a significant run-up in the last one year, will lead to correction, he said.
Further, if the US Federal Reserve enters into a sharp interest rate cut cycle, it will not be good for equities in the near term but make bonds more attractive. "Markets might get a sharp rate cut cycle, but might not be paired with strong economic data. It is very difficult to predict if FII flows will turn because of the rate cuts," Agarwal said.
Growth in real estate will last longer than the earlier cycle as price rises have been more gradual, which kept demand steady and inventory levels low.
"Plateauing effect might be visible for a while as focus on valuations has come back," he said.
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