Along with domestic demand recovery, inflation is also coming through, so rate hikes are around the corner, Saurabh Mukherjea of Ambit Capital.

“I don’t believe that the RBI can do only one rate hike in next 7-8 months of this fiscal and so there will be one more rate hike in the next 3-4 months,” Mukherjea said.

At the overall market level the market looks invincible because of the strength of domestic flows. SIP flows are consistently clocking billion dollars a month, he said.

However, being in the last stages of the bull market with input costs pressure rising, the small and midcaps are fundamentally under pressure and this could continue for next couple of quarters, added Mukherjea.

“So, this market cap migration from small and midcaps to largecaps, and in particular sectors like IT, pharma, FMCG – those sectors will pull away marketcap,” he said.

According to him, in a scenario where interest rates are rising, cost of capital is rising, it makes sense to derisk the portfolio by moving into IT and pharma that will benefit from a weaker rupee. Moreover, correction in the rupee is long overdue, he said, adding that if rupee punches through 70 to the dollar, the pharma space will do extremely well.