Markets Shift to Bottom-Up Approach: Vikas Gupta Identifies Favorable Sectors

Oil Prices to Remain Elevated for Several Weeks

The global oil market is bracing for a prolonged period of elevated prices, with OmniScience Capital's CEO and Chief Investment Strategist Vikas Gupta predicting that the $100 a barrel oil price will persist for the next several weeks.

Gupta notes that the US's decision to declare a "win" and exit the current situation could lead to a decrease in oil prices, potentially dropping to $80 a barrel and eventually to $60 a barrel by the end of the year. However, this scenario requires the US to exit within the next 4 weeks.

The current oil market disruption is attributed to the Middle East conflict, with a total shortfall of around 20 million barrels per day (bpd). The alternative sources of supply, including Russia, South America, and the USA, are estimated to provide not more than 2 million bpd in the near term.

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The geopolitical situation, particularly the US-Iran tensions, appears unlikely to be resolved soon. Instead, it may simmer like a semi-permanent situation, which could eventually be resolved through talks by a future US administration.

Gupta's investment strategy focuses on PSU banks, private banks, power ecosystem, housing finance companies, and infrastructure ecosystem. He believes that the current market is a bottom-up market, with huge overvaluation and undervaluation pockets. By being highly selective and focusing on capturing hidden alpha in growing companies available at a significant discount to their conservatively estimated intrinsic values, investors can potentially capture huge alpha over the next 3-5 years.

In addition to the US-Iran tensions, the market faces another crucial challenge: LPG supplies. The Indian government may need to implement a no/low travel advisory or enforce a lockdown to mitigate the oil supply issue. However, the gas supply issue is a bigger challenge, and high inflation is a potential result of the high oil prices.

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Gupta remains positive on the metals sector, which is currently experiencing a commodities cycle. However, he advises caution and suggests a disciplined and limited exposure to metals. The metals sector is not part of the core portfolio but is included in critical minerals allocations in thematics. He also advises caution on EMS and cement stocks, citing low margins and growth challenges.