Ajay Srivastava from ETMarkets.com offers insights on where to invest in the current market. He notes the Indian stock market's strength due to domestic investor flows but cautions about overvaluation risks, particularly for new investors. Srivastava suggests focusing on specific stocks in sectors like auto, hospitals, and undervalued areas such as sugar and paper.

Srivastava points out that the Indian market is buoyed by strong buying from Indian Portfolio Management Services (PMS) and retail investors. This demand has driven a bull market despite global uncertainties. However, he warns that high valuations, with many companies trading at high price-to-earnings (PE) ratios despite low growth, indicate potential irrational exuberance.

He advises new investors to be especially cautious, as they face higher prices and it may be harder to generate quick returns. Srivastava suggests that while enjoying the current rally, investors should be wary of a market correction.

According to Srivastava, sectors like cotton yarn, paper, and sugar are trading at historically low PE ratios, presenting potential opportunities. He highlights the auto and auto ancillary sectors as strong bets due to India’s global dominance in the auto supply chain. The hospital sector also holds promise due to the aging population and limited government investment. However, he cautions against the hotel sector due to potential overexpansion.

Srivastava advises against investing in traditional sectors like cement and steel, which he considers obsolete growth areas. He recommends focusing on companies driven by innovation and with sustainable competitive advantages. He supports dividend-yielding stocks like Vedanta, Coal India, and certain REITs, which provide stable income and reduce portfolio volatility, due to their hard-to-replicate assets and steady cash flows.

He expresses reservations about Public Sector Undertakings (PSUs), stating they often lack pricing power and efficient management. While he sees potential in the defence sector due to increased government spending, he notes high valuations and long approval cycles, advising caution.

In summary, Srivastava recommends focusing on specific stocks, avoiding outdated industries, and balancing growth opportunities with dividend-yielding investments to manage risk. He emphasizes patience, especially in sectors with long development cycles like defence.