Indian stocks risky in foreign sales, high valuations; auto, metals, monopolies safer bets for 2026: Ajay Srivastava

According to Ajay Srivastava, Managing Director at Dimensions Corporate, continued selling from foreign investors, high valuations and policy-driven sectoral movements keep Indian equities risky despite the index’s resilience.Speaking to ET Now, Srivastava said foreign investors have sold nearly ₹2.74 lakh crore worth of Indian equities, a signal that domestic investors should not ignore. “If global investors vote with capital at this scale, it means they see better risk-adjusted opportunities elsewhere. You need to listen to that signal,” he said.

Valuations and mismatch between risk and return are a concern

Srivastava said Indian equities deliver returns comparable to fixed deposits despite significantly higher risk. “If you take equity risk and get a return of 10%, which is close to the FD rate, it makes no sense,” he said, adding that several Indian stocks continue to trade at 70 to 80 times earnings – levels rarely seen globally.He said his company has reduced its equity allocation over the past year, shifting capital to precious metals and global assets. “India barely accounts for 3-4% of global markets. Diversification is key, especially when smart money is moved elsewhere,” he said.

Stick to monopolies, policy winners

Instead of focusing on new themes, Srivastava said investors should stick to sectors that enjoy strong moats and policy support. Automobiles, metals, selected banks, telecoms and stock exchanges continue to be preferred. “In India, fortunes are changing dramatically due to policy decisions: GST cuts helped cars, tariffs eliminated metals. This will continue,” he said.

He dismissed IT as a short-term opportunity, calling it structurally weak after tax breaks were withdrawn. “Until there is meaningful policy support or a revival in earnings, IT will remain a laggard,” he says.

Telecom, e-commerce: tactical exposure

On the telecom front, Srivastava said the sector remains attractive due to the limited competitive landscape, although policy sensitivity remains high. In e-commerce, he recommended measured exposure. “There’s no way around it, but valuations are nonsensical. Allocate 10 to 15% of capital, buy based on deep corrections and live with volatility,” he said.

Third-quarter earnings outlook: Auto and pharmaceutical companies will take the lead

Looking ahead to the December quarter results, Srivastava expects the auto sector, telecom sector, stock markets, metals sector and auto sector to outperform. He also sees strength in pharmaceutical and CDMO companies, helped by the depreciation of the rupee against the euro and pound.

In contrast, he warned that consumer discretionary segments such as apparel and retail could disappoint. “Household spending has shifted to cars and travel. Discretionary retail will remain under pressure,” he said.

Allocation strategy for 2026

For 2026, Srivastava says his preferred asset allocation remains unchanged: one-third Indian equities, one-third global equities and one-third precious metals and commodities. Within Indian equities, he prefers companies with long histories, strong governance and execution capabilities.

“2026 is about pedigree, not themes. Choose companies that have delivered consistent results for five to seven years. Scarcity is more important than valuation in sectors like defense, where execution (not orders) is the real challenge,” he said.

He added that concentrated portfolios perform better in volatile markets. “Your top 10-20% stocks determine the returns. Spreading capital across 50 stocks will not yield anything,” said Srivastava.