Ambit Adopts Cautious Stance on Indian Equities
Leading investment firm Ambit has issued a cautionary outlook for Indian equities, pointing to a deteriorating macroeconomic environment. The firm highlights increasing policy-tightening risks, a slowdown in economic growth, and a likely narrowing of market breadth as key concerns shaping its latest market perspective. In response, Ambit advises a strategic shift towards large-cap, liquid stocks characterized by robust balance sheets and reasonable valuations, emphasizing heavyweight names as market leadership becomes more concentrated.
Strategic Sector Bets and Portfolio Adjustments
Within its model portfolio, Ambit has strategically added Axis Bank and UltraTech Cement, while removing Shriram Finance. This adjustment reflects a clear preference for specific sectors poised to navigate the challenging economic landscape.
Banks: A Clear Tactical Overweight
Ambit views banks as the most compelling tactical overweight, especially compared to Non-Banking Financial Companies (NBFCs). The expectation of higher interest rates is anticipated to benefit EBLR-linked lenders, providing support, while simultaneously exerting pressure on the fixed-rate books of NBFCs. The addition of Axis Bank elevates Ambit's bank allocation from underweight to an equal-weight position, complementing existing holdings in HDFC Bank, ICICI Bank, and SBI.
IT Sector: A Seasonal Opportunity
Despite a more challenging structural backdrop influenced by the rise of AI, Ambit maintains an overweight position in the IT sector through key players such as Infosys, TCS, HCL Technologies, and Tech Mahindra. The firm continues to regard the IT sector as a tactical seasonal trade.
Cement: Potential Gains from Cost Softening
The cement sector is identified as another area with potential for gains, particularly if fuel and polypropylene costs experience a softening trend. UltraTech Cement's inclusion in the portfolio underscores this optimistic view.
Rising Market Concentration and Global Headwinds
Ambit's allocation strategy, favoring heavyweight banks and IT names, aligns with its 'rising concentration thesis'. This theory suggests that the top ten index constituents historically outperform during periods of narrowing market leadership. While tactical trades remain available in banks, cement, and IT, the firm cautions that each comes with caveats as slower growth, tighter monetary policy, and earnings pressure continue to build.
Persistent Oil Risks
The firm notes that India's struggle to attract emerging market capital, a trend pre-dating the West Asia conflict, has persisted. The US-Iran situation, described as a "game of chicken" now in a mutual swerve phase, has seen a ceasefire reduce immediate tail risks. However, Iran's nuclear program remains deferred, not resolved, and the crude forward curve still prices in significant risk. Ambit maintains its FY27 crude estimate at USD 86-90, emphasizing that India, importing 85% of its oil, cannot avoid the impact.
India's Underperformance Against Emerging Markets
India's one-year underperformance against emerging markets, at 37 percent, is nearing a two-decade low. Furthermore, CY26 and CY27 EPS dollar revisions stand at -14 percent and -15 percent respectively, marking the weakest among emerging markets. Valuations remain expensive at 20 times trailing 12-month PE. Foreign Institutional Investors (FIIs) have withdrawn $49 billion since December 2024, and Ambit believes a ceasefire alone is unlikely to reverse these outflows without improved growth or valuation corrections. The report also highlights India's lack of AI-linked opportunities comparable to those in Korea and Taiwan, suggesting capital is shifting towards markets positioned for the next growth cycle.
Thinning External Cushion and Rupee Pressure
India's external cushion is thinning, with merchandise exports stalled near USD 440 billion and IT export growth tapering. The FY27 current account deficit is projected at 2.5 percent of GDP. While RBI measures may offer short-term relief, a projected FY27 balance of payments deficit of 2 percent of GDP could keep the rupee under pressure, with Ambit estimating it at 98 to the dollar for FY27. The Overnight Index Swap (OIS) curve is pricing in a tighter policy path, with 10-year G-sec expectations between 7.2-7.4 percent, even as all four GDP components face pressure. Historically, slowdown phases have implied 3 percent Nifty EPS growth and 16 times trailing PE, starkly contrasting the consensus FY27 EPS growth of 15 percent and current 20 times trailing PE.
Ambit's Defensive Core Portfolio
Ambit's core portfolio remains defensive, with overweight positions in FMCG, pharma, IT, and telecom sectors. The allocation across market caps stands at 76% large-cap, 19% mid-cap, and 5% small-cap. Despite this defensive stance, the portfolio has underperformed the NSE500 by 5 percent since March 12, 2026, primarily dragged by the IT sector, though the sector remains up 5 percent since its inception in the portfolio.
Key Stock Selections
- Large-caps: Reliance Industries, HDFC Bank, Bharti Airtel, ICICI Bank, State Bank of India, Tata Consultancy Services, Larsen & Toubro, Sun Pharma, Infosys, Axis Bank, Mahindra & Mahindra, ITC, Trent, Tech Mahindra, HCL Technologies, UltraTech Cement, Britannia, Max Healthcare, Godrej Consumer Products.
- Mid-caps: Indus Tower, Marico, PB Fintech, Fortis Healthcare, Max Financial Services.
- Small-caps: Ather Energy, HealthCare Global Enterprises.