Paytm, Zomato, HDFC Bank, Infosys, ICICI, Axis Bank, M&M: US investors find these stocks attractive

Emkay Global, which spent a week on a coast-to-coast marketing trip in the US this month, met with investors across long-only and hedge funds. The brokerage said there is a pivot to bottom-up stock picking over index tracking and that IT services, consumer, and internet are key sectors attracting the US investor interest, with the BFSI space being out of favour.

The brokerage said HDFC Bank Ltd is attracting some interest due to prolonged underperformance and attractive valuations. Most investors agree that ICICI Bank Ltd is now ahead on fundamentals but feel the valuation gap is too high. Axis Bank is seen as a similar trade, Emkay Global said.

"Infosys is a favorite to play IT because of relative valuations. Mahindra & Mahindra was cited as a strong way to play the rural and mass consumption theme," the brokearge said.

Emkay Global said the US rate cut and a soft landing is seen creating a Goldilocks situation for the IT sector. It noted that the consumer sector has traditional been favorite for FPIs and some FPIs are eyeing a turnaround in the mass consumption. The internet penetration theme and the hyper growth of new-age businesses retains significant attraction, with stocks like Zomato Ltd, One 97 Communications (Paytm), and MakeMyTrip in focus.

"The large-cap bias is also starting to fade. Investors are open to looking at SMIDs, in line with the pivot to stock picking as the portfolio approach. Liquidity worries prevent them from going too deep; however, the universe of liquid stocks has expanded significantly over the last three years for SMIDs to be a meaningful strategy. Growth-adjusted valuations, management quality, and balance sheet strength are the key variables that come into play for SMIDs," Emkay Global said.

Emkay Global said investors waiting on the sidelines are now willing to look at India more constructively. Many feel that India would be an essential participant of any emerging market (EM) rally triggered by the Fed easing cycle.

Valuation worries still persist, but there is recognition that India’s improved macro stability and sustained earnings growth are supporting these rich earnings multiples. There is also a willingness to adopt bottom-up stock picking ideas over index-anchoring strategies, Emkay Global said.

"Investors seemed to have largely missed the India story. Many have under-allocated due to consistent worries on valuations. Moreover, much of the allocation has been BFSI-heavy which has also contributed to portfolio drags. The attraction to BFSI, led by its large weightage and optically attractive valuations, seems to be waning now and investors are exploring other sectors," Emkay Global said.