Chhaochharia said the building blocks for an economic growth recovery are now largely in place. The stabilisation in crude oil prices has also reduced some of the uncertainty that had weighed on the market following the West Asia tensions.
“The growth cycle looks much more visible. We always hope for growth, but visibility is quite high now. The downside is now strong. I don’t see the market correcting meaningfully in most scenarios,” Chhaochharia added.
However, he does not expect the market to see a sharp rally over the next three to six months. The large amount of equity supply from promoters, private equity investors and the government is likely to act as a near-term cap on market gains.
UBS turns selective on capital goods, defence
Chhaochharia said UBS remains positive on sectors such as power, capital goods and defence over the longer term, but investors need to become more selective after the strong gains seen in several of these themes.
The firm’s analysts are now focusing on individual stocks rather than taking an aggressive sector-wide approach. Power remains a long-term theme despite some recent moderation.
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IT services outlook improves, but earnings visibility remains key
The outlook for Indian IT services has also become less negative. Chhaochharia said UBS has seen a growing number of global clients challenge the earlier bearish view on the sector.
The company’s channel checks suggest IT services firms could continue to play an important role as businesses adopt artificial intelligence and other new technologies. The key question, however, is whether this increased role will eventually translate into meaningful revenue and earnings growth.
Valuations remain another concern, with several IT stocks already pricing in a significant amount of long-term growth.
Staples and healthcare remain areas of interest
UBS is constructive on both discretionary consumption and selected staples companies. In staples, companies that have focused on volume growth, new product launches and improving distribution could be entering a phase where these strategies begin to show up more clearly in earnings.
Healthcare remains another preferred area. Chhaochharia believes the sector has a long growth runway, supported by low penetration and improving affordability. He also remains positive on hospitals, arguing that companies have now demonstrated their ability to execute capacity expansion profitably.
Diagnostics is another healthcare segment where UBS remains bullish, with increasing penetration, a wider range of services and the shift from informal to formal providers supporting long-term growth.
Overall, Chhaochharia sees a market where the downside appears relatively protected, but a broad-based rally may take time.
For the entire discussion, watch the accompanying video
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