Banks, Defence, Manufacturing: Where Trust MF's Mihir Vora sees stock market opportunities for investors

Indian stock markets are likely to remain volatile on the back of global uncertainty and foreign fund outflows, but domestic economic numbers remain supportive, said Mihir Vora, chief investment officer, Trust Mutual Fund, in an exclusive interview with Zee Business.

Domestic demand, credit growth and tax collections are all healthy while valuations have become reasonable after almost two years of weakness, he said.

Global bond yields, uncertainty over trade negotiations with the US and crude oil prices are impacting sentiment.

"The global factors are creating uncertainty, though India's domestic indicators are performing well," he said.

Vora said higher yields on dollar-denominated bonds in the global market were drawing funds away from emerging markets such as India.

US bond yields surged, making dollar investments more attractive to global investors, he said.

"Money is flowing into the US equity market, especially into tech and AI-related stocks," he added.

India isn't the only emerging market witnessing fund outflows as other Asian peers such as South Korea and Taiwan also saw foreign investors offloading shares, he said.

Uncertainty around trade negotiations with the US and policy changes impacting Indian technology workers are also affecting the mood, he added.

These issues will continue to linger in the near term, he said.

With regard to the IT sector, Vora said most large IT companies were guiding for single-digit revenue growth of about 3-5 per cent.

While he doesn't see a three-to-five-year outperformance for the IT sector, he said beaten-down valuations and the lack of fresh negative news could lead to a short-term rebound.

The sector has been under pressure, and even modest positive developments could spark a buying interest, he said.

Vora, however, believes investors shouldn't get too excited about the sector, and instead, focus on individual stocks with better earnings growth.

Private sector and public sector banks both look attractive on the back of improved credit growth, reasonable valuations, healthy asset quality and capital formation, said Vora.

However, foreign selling could continue to pressure banking and financial stocks, which form a large part of major indices, he said.

The differential in earnings growth between large-cap stocks and midcap and smallcap was because foreign investors were dumping large-cap stocks while local investors were buying growth-oriented midcap and smallcap stocks, he said.

Midcap and smallcap stocks would continue to provide a larger universe of stocks for a growth investor, although it was important to pick quality stocks, he said.

Infrastructure, capital goods and manufacturing continue to be his preferred themes, said Vora.

Government support to manufacturing through production-linked incentive schemes and increasing private capital inflows are helping the cause, he said.

Other sectors he prefers include specialty chemicals, pharmaceutical contract development and manufacturing organisations (CDMOs), machinery, defence, power transmission and distribution and data centres.

Vora added that he was also interested in newer businesses which were taking advantage of network effects and had the ability to expand their sales across business-to-biz and business-to-consumer segments.

Vora's overall advice to investors was to focus on earnings growth and opportunities at the company level rather than getting swayed by market movements.