, Head of Institutional Equities, , suggests a cautious approach, anticipating potential headwinds and a listless market. He recommends focusing on bottom-up stock selection, particularly in consumption and select banking franchises, favoring domestic names over high-beta and capex-related stories. While large-cap IT stocks with attractive yields exist, concerns about its growth persist, leading to a preference for mid-cap IT over large-cap IT.That is the most difficult question to answer. Obviously, it was expected that the market would react. There are scenarios that you can draw out ranging from most likely to what you may want it to be or what you may not want it to be. The most likely is hopefully the tensions cool off without it escalating into a collusion of the Strait of Hormuz which is a big concern from the India perspective because that will imply oil prices moving up sharply which will impact earning sentiment and valuation multiples.

So, if you take that out as an extreme scenario, then you are looking at tensions cooling off, some retaliation from Iran and ultimately over the next few days, diplomacy taking over and we are back to square one. We are back to fundamentals. We are back to earnings and we are back to the focus on stocks and sentiment. Which way this will unroll nobody knows, but the near-term impact will be obviously felt and it will be felt across sectors.

Now, the worst case on this is it escalates and materially leads to an earnings cut and that is what I am very apprehensive about at this stage. We are not building this as our official stance, but it is a real risk because even if the crude sustains higher levels for the next month, couple of months, let us say quarter or so, earnings will take a bit of a knockoff and that could have a bearing on the upside potential that we see in the stocks.

Amit Khurana: Well, we are buying up consumption, but obviously with these new developments, it continues to be facing some headwinds here and there. Our stance right at the start of the calendar year was that you would be prepared for a zero return on Nifty for the first half which largely has worked out.

The issue now is do we get into these headwinds every now and then and it caps the upside and we potentially build, let us say, a listless movement on the key indices but play the bottoms up names? For example, we liked some of the names in consumption; we like some of the names on the discretionary side. Even in the banking side, there is a significant amount of concern on NIM pressure and we do recognise that. There are some franchises that we continue to like on the small and the midcap space. So, I think that has been the preferred way. We have been talking to clients that let us not worry too much about the indices. As long as the base level earnings are in place and there is lower risk to the earnings cut, look at bottoms up names and allocate to those. So, high beta is out; in capex related stories, we are slightly more on the back foot. We are playing more on the domestic names and more on the domestic consumption side. One caveat, if I may add, is that there has been a largecap which seems to be now very attractive from purely a dividend yield, free cash flow yield perspective, but again the concerns there continue to be 3% growth. What are the multiples you want to play for that? So, midcap versus largecap IT is a mix that we are playing out for.

Do you like the dividend yield theme because, of late, a lot of value seekers are saying in this market, buy stocks like Coal India, Bajaj Auto, HCL Tech, and typically stocks which have a 3-5% dividend yield, does it make sense to think on those lines?
Amit Khurana: Well, it does. Essentially, we are in a market which is not going to go anywhere. This is something typically we classified in our latest note. It is not going to go anywhere. Now, it does not let you go full bullish because there are headwinds. It does not let you go full bearish because you have domestic flows which continue to enter at a certain price level.

It is a market which is not going to give you clear direction and in that scenario you want to build in some allocation to your portfolios wherein you have a certain dividend which is supportive of the valuation and you also want to build in some defensive nature to your portfolio and these perfectly in that way hedge your portfolio.

Definitely, we have been of that opinion since the start of the year and as we have gone along, that hypothesis is only strengthened further. Ultimately even in some of the IT companies, while the growth rates are near zero or 2%, 3%, the payouts are pretty healthy and in some cases they are paying out 80-90%. That continues to support their valuations. If that were not to be the case, then the valuations would not have sustained at these levels. They would probably have been even lower. We believe there is a case to build for those kinds of names to have in your portfolio and especially in the environment that we are in, IT makes even greater sense.