UBS expects modest market returns, bets on consumption and defence themes

Gautam Chhaochharia, Head of Global Markets at UBS, said Indian equities remain range-bound as local liquidity supports declines but a large pipeline of fund-raising limits upside. “There is enough local liquidity in terms of mutual fund flows to support the market on the way down, but there’s also a large pipeline of capital raising which will cap any meaningful upside,” he said.He noted that market sentiment could improve if there is “progress towards a trade deal,” which could give the market “some legs.” However, he added that the overall risk-reward remains unappealing until a clear improvement in fundamentals emerges.

Chhaochharia said investors’ earnings expectations are moderate. “In investors’ mind, I don’t think they’re looking at 15-16% growth for Nifty EPS in the fiscal year 2026-27 (FY27) – they are more like high single digits to low double digits,” he explained. He added that 15-16% growth is possible “simply because of the low base.”

Also Read | How Raamdeo Agrawal’s lessons on compounding shaped son Vaibhav’s investing mindsetOn the impact of goods and services tax (GST) cuts, he said early signs of a demand pickup were visible but limited. “Some marginal bump up? Yes. Meaningful bump up, too early to say,” he observed, citing auto sector data that showed festive-season sales were up over 20% year-on-year during Navratri, but overall growth since Onam was in the low single digits.

Chhaochharia said the market has not yet priced in the full impact of GST reductions. “Markets are stuck in a range-bound level… it’s not really pricing in any major uptick from GST impact,” he said.

He also commented on global positioning, noting that UBS’s emerging market strategy remains underweight on India for now. “Global investors are not in a hurry to take up an India weight to any meaningful overweight,” he said. However, he added that if domestic and trade-related factors align, “this underperformance can reverse fairly quickly” over the next 6-12 months.On sector themes, Chhaochharia said UBS remains overweight on consumption, especially premiumisation within autos and consumer goods. “Premiumisation is one big theme,” he said, adding that companies offering higher-end products could outperform.

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He also highlighted consumption tech, including internet, food delivery, and quick commerce, as areas with strong potential, where “market estimates may be met or even beaten.”

Among other sectors, he said defence remains attractive within industrials, while IT services could see upside due to low expectations, especially in mid-cap firms. “Expectations are so low that companies are meeting or even beating,” he noted.

For the full interview, watch the accompanying video

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