‘Stock market volatile but fundamentals strong’: Analyst bets on large caps, IT stocks for next rally - Infosys, TCS, RIL and more

Indian equity markets are oscillating in a narrow range despite a healthy earnings season, prompting market experts to advise investors to use the current volatility as an opportunity to accumulate quality large-cap stocks.

Rahul Shah believes the broader trend remains constructive, even though indices have slipped into a consolidation phase following the Budget and recent global developments. According to him, corporate earnings for the third quarter have largely reinforced confidence, with most sectors delivering double-digit profit growth for the fourth straight quarter.

He pointed out that nearly ninety percent of the sectors under coverage reported growth, indicating that the earnings momentum remains intact beneath the surface volatility.

BFSI, metals and autos lead the packAmong sectors, Shah continues to favour banking and financials. The BFSI space has seen consistent double-digit growth, with both private and public sector banks performing well over the past 6 to 12 months. Select non-banking financial companies are also expected to remain resilient.

Metals, which have rallied sharply over the last two quarters, are currently witnessing a pause. Shah views this as a temporary breather rather than the end of the upcycle. While non-ferrous metals have already performed strongly, he believes steel could be the next leg of the rally, supported by firming prices and policy support such as safeguard duties. Aluminium and zinc prices, too, remain firm, and management commentaries across companies suggest stable spreads for the next couple of quarters.

Autos and cement also feature among his preferred bets. With GST rationalisation benefits expected to play out over the next two to three quarters, Shah sees room for further gains in auto stocks. Cement companies, which posted steady numbers, are also likely to benefit from infrastructure-led demand.

Reliance Industries: AI CapEx seen as re-rating triggerOn Reliance Industries, Shah remains constructive despite concerns around its aggressive capital expenditure plans. The company’s proposed USD 110 billion investment push into AI infrastructure and data centres has reignited debate around leverage, especially after it had previously achieved a near net-debt-free status.

However, Shah argues that the conglomerate’s track record of transforming businesses — from telecom to retail — provides comfort. With its core energy business, retail arm and telecom operations under Jio Platforms, valuations appear reasonable after a year of subdued stock performance. He believes the AI investment cycle could act as a re-rating catalyst rather than a structural debt concern, given the company’s cash flow strength.

IT correction offers long-term opportunityThe IT sector has undergone a sharp correction, with several large-cap names falling twenty to twenty-five percent from recent highs. While concerns around artificial intelligence disruption and muted global tech spending persist, Shah sees the current weakness as an accumulation opportunity in select large caps.

He highlighted Infosys and Tata Consultancy Services as stocks where long-term investors can begin building positions. Although near-term recovery may be gradual and more sideways than V-shaped, rate cuts in the US and improving client commentary could support a turnaround over the next couple of years.

Technical analysts, however, caution that IT stocks may take time to stabilise, given the extent of recent declines. Large caps are likely to recover first if sentiment improves.

Stock-specific developments are also driving trade. Swiggy is set to shut its 15-minute food delivery service amid profitability concerns, underscoring pressures in the ultra-fast delivery segment. Meanwhile, Ola Electric plans to rationalise its store network as part of a broader structural reset.

(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions)