Paytm,TaMo: Emkay picks 15 stocks as high US yields reshape.

Low-growth companies will not find favour, and better visibility of stronger growth over the medium term becomes a prerequisite to lure global investors, said Emkay.

Even as foreign investors turn net buyers of Indian equities for the second month in a row in August, analysts at Emkay Research believe that earnings resilience will not be enough to attract them anymore as higher US risk-free rates dim the appeal of investing on Dalal Street.

The bond yields in the US have climbed up recently, with the long-term US Treasury yields, particularly the 30-year bond, pushing above 5 per cent while the benchmark 10-year yield sits around 4.7 per cent.

Notwithstanding Treasury interventions, driven by the busy issuance schedule of the US Treasury and AI hyperscalers, sticky inflation, and the absence of traditional large buyers in US G-Sec markets, US yields are here to stay higher for longer, said Avinash Singh and Mayank Sahu of Emkay Research.

They further expect the global investors to be lured to India only by visibility of higher growth for longer as sustained higher US risk-free rates (~5 per cent), coupled with equity risk premium, India risk premium, and currency depreciation, results in global (and US) investors seeing ~15 per cent return as the floor for investing in Indian equities.

This means low-growth companies will not find favour, and better visibility of stronger growth over the medium term becomes a prerequisite to lure global investors. “This preference can change only if US yields were to crash, which we do not know when or how,” it said.

Stocks to buy

In this backdrop, Emkay expects the divergence between flagship indices and broader market performance to likely continue. The Nifty 50 index is down 8 per cent so far this year as against a 2 per cent decline seen in the broader Nifty 500 pack, and a 5 per cent and 13 per cent rise in the Nifty Midcap 100 and Nifty Smallcap 100 indices, respectively.

“A large weightage in Nifty 50 is attributable to defensive large-cap companies that are growing too slowly to justify ownership by foreign investors in the current environment,” it said. The brokerage, therefore, prefers high-growth new-age companies, cyclical turnaround companies, premium discretionary consumption, and select financials stocks.

New-age stocks: In this segment, Eternal, Paytm, Lenskart, Pinelabs, Ather Energy and and Urban Company are the preferred bets as they offer better visibility of stronger growth over the medium term.

Discretionary consumption: In this space, the brokerage said it prefers discretionary consumption names such as Ethios, Titan, and TVS Motor.

Cyclical stocks: It said that cyclical stocks such as Tata Motors and GE Vernova T&D have strong growth tailwinds.

Financials: In the financials space, our preference is based on risk-reward, where we see valuations as reasonable and growth continuing to stay strong or starting to accelerate, it said. ICICI Bank, Ujjivan SFB, Mahindra & Mahindra Financial Services, and SBI AMC are its preferred names.

Disclaimer: Moneywealth research provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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