Punita Kumar Sinha, Chairperson of InCred AMC, mentioned that she wouldn't be surprised if Indian markets corrected 7-10 percent. In an interview with CNBC-TV18, Sinha said that between India and China, a lot of FIIs are currently leaning toward China. She also mentioned that if the markets do correct then the right strategy would be to remain selective and focus on fundamentals. She believes sectors like materials, energy could be the ones to watch out for amid the rising inflation backdrop. She also sees promise in consumer discretionary space and pockets of real estate among others.

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Sinha said, “The thing that really pushed the Indian market much higher starting June, July, was what has happened in China. The Chinese regulatory regime had tightened, there was a lot of concern on what happens there in terms of the tech sector and we saw a lot of money flowing out of China. I think some of that came to benefit India."

She further said, "India also had a lot of IPOs. So I think a lot of FIIs invested in those IPOs as well and money did come into India. Now, what has happened is that in terms of China-India trade, that trade is now moving more in favour back to China, because India is trading at a far higher premium to China, than it has ever in the past.”

“So while there is still concern on China, and it is not at all like a slam dunk that China is going to outperform India, but there is definitely enough people who are now looking at the valuations in China and saying, the India-China trade doesn't look that attractive in favour of India anymore, and perhaps we should look back at China. So maybe some of the FII selling has come from that,” Sinha explained.

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On her picks in the current market scenario, Sinha said, “The economy is picking up, so on the economic side, India is doing quite well and growth is showing strong momentum. Other than inflation, which seems to be kind of a concern globally, there doesn't seem to be a lot of concern on the growth side. Of course, interest rates might move back up next year. So I think if you look at what might be a good place to start, looking at when the economy does well, when interest rates kind of go up, I think financials is a sector that has lagged the markets, that is a sector to look at.”

Sinha added, “Globally, there is still the view that if inflation rises, which it is in the US in particular, we are seeing rising inflation numbers, then materials, energy, those are the sectors that one should still be looking at. I think consumer discretionary, pockets of real estate are the other sectors. I think if the supply chain bottlenecks start easing then auto may be a sector that one should also look at. So there is opportunity across different sectors, but we will have to be very careful and very selective while picking entry points.”

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On IPO market, she said, “Globally, you are also seeing the IPO market has been full of a lot of IPOs, a lot of supply. Even if you look today in the US markets, most of the IPOs that got listed this week and last week were all down double digits. So there has been quite a bit of supply, a lot of concern on valuations. I think valuations everywhere in the world are stretched but liquidity continues unabated and so I think that's the push and pull that you keep seeing in the market.”

Sinha further said, “I have been talking about valuation being stretched for a while and what we are seeing in India is not isolated to India alone. The IPO market has been tightening up in terms of capital raising in the US, so markets are tightening up, IPOs in the US, some of them have gone up significantly on the first day of trade. But then, we started seeing them correct, something we are seeing in India as well. So similar patterns to some extent, of course, some of the global investors are invested in India and US and so they are driving similar flows across multiple markets. So yes, I think one has to be a little bit concerned about the valuation.”

She added, “So whenever the Indian market goes up very fast, in a very short period of time, we do see corrections following so I think now the growth is in good shape. So barring any other external shocks, one should think that if you get the right entry points and valuations do correct, which they might then maybe start re-looking at the fundamentals and getting back and being more selective.”

For full interview, watch accompanying video...

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(Edited by : Dipikka Ghosh)