Speaking to ET Now, he noted that recent short covering has helped the market rebound from lower levels, yet the broader concern remains whether indices are trading above fair value given growth and inflation expectations. He added that while liquidity will always provide a floor to markets, that does not necessarily mean valuations are appropriate at current levels.
Dalal said he remains cautious on the overall market construct, arguing that earnings visibility for FY27 looks weak and could weigh on sentiment. He stated that although markets are forward-looking and often discount FY28 recovery scenarios, uncertainty over global and domestic developments makes those assumptions fragile. He also flagged unpredictability in global leadership and policy direction, suggesting that external factors could easily alter growth expectations over the coming months. Despite this, he acknowledged that liquidity will continue to support quality large caps, though he believes markets may still be ahead of fundamentals in the short term.
On sectors, he expressed caution on metals, advising investors to avoid chasing the space after strong rallies. He explained that commodity cycles often peak when sentiment is strongest, as rising prices temporarily boost profits and make valuations appear attractive. However, he warned that this stage is typically followed by demand destruction and margin compression. Referring to vertically integrated players such as Tata Steel and Hindustan Copper, he said investors often misread peak-cycle valuations as opportunity. His view is that commodities are best bought when the cycle is weak and valuations look unattractive, not when conditions appear strong. While short-term gains may still be possible, he believes long-term risk increases significantly if investors enter late in the cycle.
On real estate, Dalal maintained a constructive long-term outlook despite near-term softness. He said India’s property market remains structurally strong, though the mid-income segment is currently under pressure and may stay subdued for the next year to 18 months. He highlighted continued strength in premium and luxury housing, while noting that developers with exposure to large urban markets are better positioned to benefit from improving cash flows over time. He cited DLF, Prestige Estates Projects, and Godrej Properties as key players likely to benefit as collections improve and completed projects begin generating stronger cash flows. However, he cautioned that rising inflation and potential interest rate pressures could delay recovery in the sector, which typically struggles in tighter monetary conditions.
On banking, Dalal remained firmly positive, calling it one of the strongest structural themes in India’s equity market. He noted that despite muted stock performance in recent years, valuations for private sector banks have corrected and now appear more reasonable. He highlighted HDFC Bank as a long-term compounding story still playing out, supported by improving cost of funds dynamics post-merger. He also pointed to ICICI Bank, Axis Bank, and State Bank of India as key beneficiaries of India’s credit-led growth cycle. Additionally, he said higher-risk lenders such as IndusInd Bank, IDFC First Bank, RBL Bank, and Yes Bank could offer sharper upside, albeit with higher risk. He concluded that investors may consider either selective stock picking or a broader banking ETF for medium-term exposure, as the sector remains well-positioned for India’s long-term growth story.
