Invest Only In Market Leaders, For Now

IF WE LOOK at the key macroeconomic stability parameters today—current account deficit (CAD), actual inflation and inflation expectations, banking system health, government and corporate balance sheets—they are all in good shape.

- ANISH TAWAKLEY

However, weak demand remains a concern. Fortunately, it is responsive to fiscal (tax cuts, government spending) and monetary (interest rate cuts) stimuli. With both measures in play, economic growth is expected to pick up.

In such an environment, our preference is for large cap stocks in the domestic cyclical sectors (cement, auto, financials and capital goods). From a stock picking perspective, it will, however, be important to pick stocks that have a strong competitive position within the sector. Backing stocks which have weak competitive positions just because they have sector economic tailwinds will not work.