At the same time, UBS acknowledged that India has underperformed some Asian peers because markets such as Taiwan and South Korea have benefited from strong AI-linked demand.
However, the firm believes India could eventually benefit from AI adoption across industries, especially if companies improve productivity and lower costs over time. UBS remains cautious on Indian IT in the near term, but believes smaller firms may be better placed to adapt to change than large-cap IT players.Diviya Nagarajan, Head-India Research at UBS said, “The technology, as I said is still very young, and as the technology evolves its capabilities seem to be evolving by leaps and bounds, and that adds a little bit of uncertainty to the level of preparedness that the industry can have on this.”
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Foreign investor interest in Indian equities is slowly returning as strong earnings and improving sector fundamentals begin to draw attention back to the market, according to UBS.
Nagarajan said, “We are definitely seeing pockets of interest emerge, especially from an FII perspective, looking at value bottom up stories that can be earnings compounders over a long period of time. It’s still early days, but I would put it at an optimistic compared to where we have been in the last couple of months.”According to UBS, financials are emerging as one of the key sectors attracting investor attention. Improving credit growth, healthier balance sheets and a cleaner banking system after years of bad loan issues have made banks and non-banking financial companies more appealing.
The brokerage is also seeing interest in select midcap companies with long-term earnings compounding potential.
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Energy security and renewable energy are also gaining traction as investment themes, particularly amid geopolitical uncertainty and volatile oil prices.
UBS expects defence to remain a structural growth area as governments globally continue increasing spending in an increasingly uncertain world.
Consumption, especially among large consumer staples companies, has also surprised positively, with demand trends improving faster than expected.
For the entire discussion, watch the accompanying video
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