India’s growth story, not AI trade reversal, will drive foreign flows: Sameer Dalal

As concerns over the global AI trade trigger volatility in markets such as South Korea, investors are debating whether India could emerge as the next destination for foreign capital. According to Sameer Dalal from Natverlal & Sons Stockbrokers, the answer lies less in the unwinding of the AI theme and more in India’s improving macroeconomic fundamentals.

He believes the recent weakness in AI-related stocks is more of a valuation correction than the end of the structural AI investment cycle.

“Look, it is just the beginning of maybe a bit of a correction in the AI trade because the AI investments and all of that happening globally are not going to reverse themselves immediately. They have known for a while that the path to profitability is still some time away. So, these are just certain news flows that come in and correct valuations that have probably gone more than they should have,” he said.

Dalal said it would be premature to conclude that investors will immediately shift away from AI-focused businesses toward traditional sectors or that India will instantly regain foreign inflows.

“Does that mean that the AI trade is over and that people are going to look at more traditional businesses? Is India going to get its flows back right away? I do not think those are the kind of situations that are there,” he said.

Instead, he believes India’s own economic story is strong enough to attract capital.
“Independently, India should get its flows given the fact that crude prices have come off, which is a big benefit for the Indian consumer eventually and for India’s financials. The monsoons, albeit late, have started to some extent. We will need to keep monitoring the progress. If the progress continues to remain good, India will do quite well,” he said.He added that investors could increasingly focus on India’s earnings recovery over the coming financial year.

“Irrespective of whether the AI trade and South Korea struggle, or whether the US markets are going through a bit of turmoil, India should hopefully get some flows if people believe that FY28 will be a year that sees strong growth after a couple of years of pain. So, for me, it is not the AI trade reversal; it is purely the fact that India should start doing well that flows should resume,” he said.

Bullish on pharma, cautious on nutraceuticals
Commenting on the recent buzz around nutraceutical companies following Honasa’s acquisition announcement, Dalal said he does not have a specific view on the segment.

“I do not have a view on that particular space, but if you ask me about the pharma space, we remain very constructive and bullish. We think the opportunity that still exists for Indian pharma to capture market share in the US is very strong,” he said.

He added that he was not familiar enough with the Honasa transaction to comment on it.

Tata Motors‘ targets look achievable
Dalal believes Tata Motors is well placed to meet its guidance despite concerns around margins.

He pointed out that last year was impacted by Jaguar Land Rover‘s cybersecurity issue and weaker Middle East demand, both of which hurt volumes.

“I believe it would be possible for them to achieve that guidance. It may not be easy to get the margins, but you have got to realise that this is an operating leverage business as well,” he added.

According to him, the worst of those disruptions appears to be over.

“The current year they are saying for JLR they are going to be able to breakeven on cash flows, and they will be EBITDA positive. Once these issues resolve and they are able to get back that growth momentum, achieving a 10% to 15% margin with the India unit plus Jaguar Land Rover together will not be a very difficult task,” he said.

Dalal also highlighted India’s growing automobile demand and Tata Motors’ leadership in electric vehicles.

“Demand for automobiles continues to remain strong. India is going to be one of the bigger drivers for automobiles. The electric vehicle segment in India will get a push, and Tata has the largest range at this point in time, with continuously improving products,” he said.

He also believes the recent correction has made valuations attractive.

“The stock took a massive knock after the JLR meet because people wanted more. But at this point in time, valuations are quite attractive, and one should definitely go ahead and make an investment in Tata Motors. I think there is upside,” he added.

IT worst may be over, but patience is needed
Dalal has become less negative on the IT sector but believes investors should wait before making aggressive bets.

“I am not as positive on the IT space, but I am not negative anymore. The worst for the IT sector is pretty much done,” he said.

He argued that AI will complement rather than completely replace traditional IT services.

“As much as people say AI is going to disrupt the way traditional business is done, I do not think that can totally happen. You are still going to need people servicing it because if AI goes wrong somewhere, you need someone to fix it,” he added.

However, he prefers waiting until industry leaders emerge.

“I would not go out and buy IT stocks right away because it is going to be another six months to a year before we know who the winners are, who has got what tie-ups, and then we can probably take a more calculated and better bet,” he said.

Power, banking, consumption and cement remain top sector picks
Dalal continues to favour sectors closely linked to India’s domestic growth story.

“We have always been positive on the power sector in India. We think the opportunity is very large. Then we think banking and financial services. If India has to grow, the BFSI space is something that is going to be driving growth,” he said.

He also remains optimistic on discretionary consumption.

“Consumer discretionary is something we have been positive on. We think that is something that will do well,” he said.

Among his newer investment ideas, Dalal highlighted cement as an emerging opportunity.

He believes years of capacity additions kept utilisation levels low, preventing companies from benefiting from operating leverage. As infrastructure spending and real estate activity improve, utilisation rates could rise and profitability could strengthen.

“We feel that, given the fact that we are are expecting real estate to bounce back, and infrastructure and the power sector will see huge capex, there will be demand for cement. Once utilisation rates start going up, operating leverage will play out,” he said.

Dalal’s preferred picks in the sector are Ambuja Cement and Shree Cement.
“We like Ambuja Cement at this point in time, where we think the merger with ACC will allow it to get more benefits and cost reductions, which will allow profits to go up,” he said.

“The other one that has corrected quite a bit is Shree Cement. Given the capacity additions and the utilisation that will happen, we think that throws up an opportunity. UltraTech has also corrected but is still a little on the expensive side. I would wait for another 5-7% correction before looking at it from a buying perspective,” he added.