A heightened level of financial market volatility and uncertainty over the outlook for currencies and global macro will undermine equity markets – including India. At this point in time we advise investors to look at sectors/stocks that are most insulated from global macro uncertainties and the associated contagion risks.
Utilities, pharmaceuticals, tractors, oil marketing companies, cement and consumer staples appear to be the most insulated sectors in India. Stocks that appear to be most insulated include Sun Pharma, Lupin, Aurobindo, ITC, Titan, Nestle, NTPC, M&M, Hero Moto, Shriram Transport, HDFC Bank, Indusind Bank, BPCL & HPCL.
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While the initial reaction by investors will be negative, further direction for the market will depend on the contagion impact of this event and how it impacts the fragile fault lines in a globally interconnected world. Our global economics team highlights four key sources of potential contagion risks (1) Vulnerable banking systems in the Euro area (2) global confluence of shocks (3) A constrained ECB and (4) markets fearing that Brexit is the first of several political dominoes to fall and prices risk accordingly.