We see recent softness as an opportunity to raise exposure, driven by higher oil prices. While his weakness may persist in the near term, thus presenting even better timing, we believe the window of opportunity might not be open for too long. Valuations are expensive, but will likely remain so in a scenario of policy/govt continuity, said Nomura equity strategists Chetan Seth, Anshuman Agarwal and Ankit Yadav.
In contrast to their record highs, benchmark indices have dropped 3 per cent from their record highs thanks to a surge in global oil prices and a surge in selling by foreign portfolio investors.
The brokerage is positive on stocks quoting at'reasonable relative valuations'and those expected to gain from the growth in the domestic economy.
L&T, ICICI, Axis Bank, L&T, Reliance, ITC and MedPlus are among the stocks it favors. Nomura is also positive on stocks that are likely to benefit from structural themes like increased adoption of electric vehicles. These include Mahindra & Mahindra and Uno Minda.
Nomura says sustained high oil prices, Chinese re-rotation and the general elections in May 2024 are the key risks for Indian markets.
The brokerage says populist measures and lower government capex, especially going into the elections, could be a concern area. The institute also considers that there could be a pullback in the Indian markets in case of a global 'risk off' scenario, as valuations are rich both on an absolute and relative basis. If global oil prices are above $100 per barrel, it will be a major risk as it could put pressure on the twin current account and fiscal deficits and also hurt corporate earnings.
Reversing in domestic flows also remains a key risk for the Indian markets, Nomura said.