With skyrocketing order books driving massive rallies in power and defence stocks, retail euphoria is at an all-time high. However, ICICI Prudential’s Senior Fund Manager, Mittul Kalawadia, who manages over ₹72,000 crore across major schemes like the Equity & Debt Fund, Dividend Yield Equity Fund, and iSIF Equity Long-Short Fund, is striking a strong note of caution.

In this interview with ET Markets, he warns that current valuations have already priced in future growth, leaving little margin of safety for aggressive new bets. Edited excerpts from a chat on market outlook, sectoral bets and stock picking in a tough macroeconomic environment.

How has your allocation between equity and debt changed over the last year in ICICI Prudential Equity & Debt Fund?
We do not maintain a static allocation between equity and debt. The allocation is dynamically managed based on valuations and certain macroeconomic factors, with valuations being the primary driver. Over the last year, our equity allocation has moved between approximately 65% and 75%. Currently, it is around 73-75%. Whenever valuations become attractive, we increase equity exposure, while expensive valuations prompt us to reduce it. The fund’s mandate allows us to operate within a 65-80% equity range.Which sectors currently offer the best opportunities from a valuation and growth perspective?
Valuations are close to their long-term averages, expectations are reasonable, and fundamentals remain healthy. Banking is one sector we find attractive from a valuation perspective. We also like certain discretionary consumption businesses, particularly those with pricing power. In an inflationary environment, companies that can pass on costs tend to maintain profitability better. This includes select automobile and consumer discretionary businesses. On the export side, we like pharmaceutical companies and exporters of manufactured goods. Currency depreciation can enhance their competitiveness globally. We also find opportunities among companies benefiting from import substitution.

The consumption narrative has been strong over the last year. Do you still remain positive?
We were not very positive on consumption as a broad theme. Consumption is not a homogeneous category. Different segments perform differently depending on demand conditions and competitive intensity. We prefer specific discretionary categories where either competitive dynamics are improving or pricing power remains strong. While GST reductions have supported consumption, inflation has partially offset some of those benefits. However, in most categories, price increases have not fully negated the gains from lower GST rates.
What is your outlook on PSU banks?
The key question is whether current profitability levels are sustainable. PSU banks benefited from treasury gains and lower credit costs. Going forward, treasury income may moderate and credit costs could increase marginally. The strong earnings upgrade cycle that PSU banks enjoyed is largely behind them. While valuations remain reasonable, the scope for meaningful re-rating depends on whether economic conditions improve again. Currently, we have very limited exposure to PSU banks.
What is your view on the broader PSU space, particularly defence, power and energy?
Within PSUs, we continue to like the power sector. The underlying business cycle remains favourable, although there could be some seasonal fluctuations. Defence remains an attractive long-term theme, but valuations in many defence stocks already reflect a significant portion of future growth expectations. Execution will now become critical. Companies must deliver on order books and profitability. While we like some individual defence names, we are not broadly positive on the entire sector at current valuations.

There has been a shift in investor preference from PSU defence companies to private defence companies. How do you view this?
The theme remains intact, but valuations across both PSU and private defence companies have become expensive. From a thematic perspective, defence remains attractive, but valuation comfort is limited.

Your dividend yield fund owns IT stocks. There are concerns that AI could significantly disrupt IT services companies. How do you think about that risk?
The growth environment for IT remains challenging. Economic growth globally is moderating, and AI introduces additional uncertainty regarding future demand pattern. However, valuations have corrected, dividend yields have improved and cash flow generation remains strong. This creates a case for owning the sector, although we are not taking a significant overweight position.

This is a contrarian opportunity, but unlike some previous contrarian calls, it is not one where investors can take very large bets. AI is not a temporary phenomenon. It is a structural change and has the potential to be disruptive. That said, disruption often takes longer than people expect. Traditional newspaper companies, for example, continue to operate profitably despite digital disruption. However, their valuation multiples have compressed significantly over time. Something similar could happen in IT. Even if earnings remain resilient, valuation multiples could continue to de-rate. Therefore, while there is a case for investing in the sector, position sizing becomes very important.

Have you increased your allocation to IT over the last year?
Compared to eight or nine months ago, our allocation is higher. At one point, we were significantly underweight in the sector. Today, we are closer to benchmark weight. The combination of attractive valuations, strong cash generation and increasing shareholder returns through dividends and buybacks has improved the investment case.

What is the starting point for stock selection in your dividend yield fund?
The first filter is yield. We evaluate both dividend yield and operating cash flow yield. However, yield alone is not enough. We focus equally on the sustainability of those yields and the probability that they can grow over time. Our process combines yield, sustainability and growth potential to identify the most attractive opportunities.

How is the portfolio constructed?
The portfolio is built through two approaches. The first is a systematic ranking framework that combines dividend yield, operating cash flow yield and sustainability metrics. The second is a bottom-up approach where we identify businesses undergoing positive cyclical change. In such situations, current yields may not appear attractive, but future cash flows could improve significantly. We have used this framework successfully in sectors such as telecom, automobiles and power in the past.

Why has your allocation to REITs reduced over time?
There was a period when REIT valuations were significantly more attractive, and our allocation was higher. Over time, valuations improved and yields compressed. Relative to other opportunities available in equities, REITs became less attractive. As a result, our allocation has reduced.

What is your outlook on the power sector, particularly power equipment companies?
The underlying theme remains strong. Global AI-related capital expenditure is driving demand for power infrastructure and equipment. However, valuations have become quite rich. The market has increasingly priced in the growth opportunity. However, there could be a possibility that these companies could surprise positively. We have seen similar cycles in the past where strong demand supported earnings growth for several years. That said, given the elevated valuations, it would be risky to have a very large allocation to the sector. Any slowdown in global capex could quickly affect sentiment and valuations.

From a value perspective, where do you currently find opportunities in the market?
Banks remain attractive from a valuation standpoint. Beyond banks, we see opportunities in pharmaceutical companies and export-oriented manufacturing businesses. These are the areas where we currently find the best combination of valuation comfort and business visibility.

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Mumbai: Anil Agarwal plans to relist holding company Vedanta Resources, possibly in the US, as the group plans to plough $100 billion into Indian metals and minerals over the next few years. The metals magnate is turning his commodities conglomerate into five listed firms that could help them scale independently as the country presses on to raise production to meet soaring demand for resources. The number of listed companies goes up to five from one on Monday.

“I have a vision to get about $100 billion into India,” Agarwal said in an interview. “We have grown today only because of our listing in London… US is an option” to raise funds by listing Vedanta Resources, which was delisted from the London Stock Exchange in 2018.

India’s aatmanirbhar (self-reliance) push has led to the removal of obstacles for business but the Centre could do more.

“The government really wants us to be self-sufficient,” said Agarwal. To make things easier, it could move to “self-certification like in Canada, Australia and America. If you do not comply with rules, then there should be a hard penalty. That means faster execution.”

While aluminium may be the most coveted business for investors when Vedanta’s units get listed, its hydrocarbons division could be biggest in terms of revenue as the government makes exploration more friendly and viable. “Oil and gas, I have a feeling, will be one of the largest businesses for us,” said Agarwal. “We have offshore, onshore… gas. Government is now very positive. They give a long lease.”

Nifty’s sharp breakout above the 23,500 level has prompted technical analysts to turn bullish on the near-term market outlook, with many seeing signs of a base formation around the 23,100–23,300 zone. Analysts said improving momentum indicators, bullish chart patterns and sustained buying interest could help the index move towards the 24,000–24,500 range in the coming weeks, while the 23,100–23,300 zone is expected to provide crucial support.

NAGRAJ SHETTI
SENIOR TECHNICAL RESEARCH ANALYST, HDFC SECURITIES

Where is Nifty headed this week?
Nifty witnessed an excellent breakout. A long bull candle was formed on the daily chart, which indicates a decisive breakout of the consolidation movement. Further sustainable upside from here could open the next upside targets of around 23,800 and 24,100 levels. Immediate support to be watched is at 23,300. Trading Strategies
Traders may buy Bank Nifty June futures around 56,900 or accumulate the 57,000 call option (June 30 expiry) at Rs 800-811. Maintain a stop loss at 56,000 on spot levels. On the upside, Bank Nifty could advance towards 57,700 initially and 59,200 thereafter.

TOP STOCKS BETS
BANK OF INDIA: Buy Rs 145, CMP Rs 145, Target Rs 154, Stoploss Rs 141
The stock has seen a sharp rally recently, and the current consolidation phase offers a buying opportunity, with RSI (Relative Strength Index) and volume indicators pointing to further upside.
BPCL: Buy at 302 , CMP Rs 302, Target Rs 317, Stoploss Rs 292

BPCL has rebounded sharply after a recent correction, with the chart indicating a key bottom reversal, supported by strong volumes and positive RSI signals

SACCHITANAND UTTEKAR
VP- RESEARCH ( TECHNICAL & DERIVATIVES), TRADEBULLS SECURITIES

Where is Nifty headed this week?
Nifty closed above 23,500, signalling improving buying interest and a base formation in the 23,300– 24,000 range. While the trend remains weak, with ADX above 32, RSI has moved above 50, indicating a possible directional shift. A sustained move above the 23,800 resistance could push the index towards 24,000 and 24,420, while the 23,150–23,100 zone remains a key support area.

Trading Strategies
Since the Nifty50 has displayed a ‘Piercing Line’ formation on its weekly scale. It’s ideal to deploy fresh longs. Traders should accumulate Nifty up to 23,520 with a stop loss below 23,380 for a potential upmove towards 24,000 & 24,420, which could be seen in the coming weeks ahead.

BUY NIFTY – up to 23520 SL 23380 TGT 24000/24420. BUY BSE SENSEX- up to 74945 SL 74550 TGT 77100

TOP STOCK BETS

HDFC Bank CMP Rs 772, Buy Rs 772, Target Rs 840, Stoploss Rs 754

Weekly ‘Bullish Engulfing’ pattern with RSI displaying a strong positive divergence. A bullish crossover of its 5 & 20 EMA is another good sign for directional momentum.

UltraTech Cement CMP Rs 11,117, Buy Rs 11,180, Target Rs 11,588, Stoploss Rs 10,910

The stock has repeatedly defended the 10,700 support level, forming a strong double-bottom pattern that signals a potential reversal, with the stock likely to move towards 11,600 while 10,700 remains a key support zone.

SOMIL MEHTA
HEAD OF RETAIL RESEARCH, MIRAE ASSET SHAREKHAN

Where is Nifty headed this week?
Despite the ongoing global uncertainties, the Nifty held firmly above the 61.8% retracement level and formed a strong base around 23,100. A positive weekly close and a bullish crossover in the daily momentum indicator point to strengthening upward momentum. The recent low of 23,070 remains a key support level, while a decisive move above the 20-DMA and 40-DEMA levels of 23,532 and 23,676, respectively, could further strengthen bullish sentiment and lift the index towards 24,100 in the coming days.

Trading Strategy
Buy NIFTY Futures at current levels or on dips, SL – 23,070 on a closing basis. Target – 24,100 – 24,500

TOP STOCKS BETS

KEI Industries Buy at CMP Rs 5,374 Target Rs 5,600– 5,800, Stoploss Rs 5,120

The stock has broken out of its earlier trading range and a triangular consolidation pattern above the 40-day EMA, with Friday’s decisive breakout and a bullish hidden divergence on the daily RSI signalling a continuation of the uptrend after a brief consolidation phase.

HDFC Bank: BUY at CMP Rs 771, Target Rs 810–830, Stoploss Rs 740

Despite recent underperformance, HDFC Bank is well placed for a recovery as the Nifty Private Bank index has registered both short- and medium-term breakouts, while the stock has broken out of a falling wedge pattern, supported by positive divergence on the daily RSI and a bullish crossover in the daily momentum indicator.