Market veterans favour value plays over crowded, expensive themes

After two difficult years for Indian equities, there is scope for reasonable returns as valuations turn less demanding, according to senior market participants who spoke to ET. Large caps look better placed, while the outlook is more cautious on mid- and small-caps. Financials, manufacturing and consumption are among the preferred themes, while views on technology are sharply divided

NEELESH SURANA, CIO, Mirae Asset Mutual Fund

MARKET OUTLOOK: India looks better positioned than sentiment suggests and is a natural hedge against crowded AI trade. Valuations are no longer a headwind, while domestic fundamentals are sound. Any global trade rotation could be meaningful. Key risks are elevated crude, rising developed market bond yields, El Niño and heavy equity issuance. Overall, we expect low-teens returns.

PREFERRED INVESTMENT STRATEGY: Our strategy is a barbell, combining quality stocks with strong earnings upgrades at sensible valuations with holding sector leaders that have corrected over the past two years and are now in value zone.

THEMES LOOKING ATTRACTIVE: Banking, consumer discretionary, healthcare and manufacturing. Sector leaders, impacted by FPI selling over the last two years, are now attractive.

THEMES TO STAY AWAY FROM: Slow-growth or disruption prone sectors like consumer staples and IT. Cautious on narrative-driven, richly-valued sectors like capital goods.

Read more: Goldman Sachs identifies 42 Indian stocks riding AI build-out

JANAKIRAMAN RENGARAJU, CIO – India Equities Templeton Global Investments

MARKET OUTLOOK: The 12-month base case for Indian equities may not be quite euphoric, but it is constructive. Largecap valuations are more reasonable, while higher mid- and small-cap multiples call for greater prudence. Globally, the picture has deteriorated. Unresolved conflicts have entrenched inflationary pressures, while rising interest rates and heavy fiscal debt reinforce each other. Tariff uncertainty continues to cloud trade growth, while questions are emerging over the viability of massive AI investments, even as enthusiasm and valuations remain elevated.

PREFERRED INVESTMENT STRATEGY: Adopt a tone of ‘cautious optimism’ over the medium term.

THEMES LOOKING ATTRACTIVE: Financials, industrials and capital goods, consumption and electronic manufacturing, which are linked to capex pick up, rising affluence and credit growth.

THEMES TO STAY AWAY FROM: Avoid expensive small and mid-caps with weak cash generation and businesses dependent on endless equity funding.

Read more: SIPs offer steady gains as most fund categories beat benchmark indices

ANISH TAWAKLEY, CIO, DSP Mutual Fund

MARKET OUTLOOK: Economy remains in good shape, while valuations are now neutral. This should translate into reasonable market returns broadly in line with earnings growth.

PREFERRED INVESTMENT STRATEGY: Don’t chase narratives that have already played out, rather look at sectors that have been underperforming since the last 2-3 years.

THEMES LOOKING ATTRACTIVE: Private banks, insurance companies, automobiles and cement.

THEMES TO STAY AWAY FROM: Careful about companies where promoters are diluting (either through primary or secondary sales) or where private equity is selling, including IPOs. Promoter dilution and PE sales happen when performance and valuations are close to peaks. Cautious on metals, IT and FMCG. For IT, the problem is not AI but the fact that Indian listed companies are losing market share to GCCs set up in India.

R SIVAKUMAR CIO, Axis Mutual Fund

MARKET OUTLOOK: The outlook is constructive. Economic slowdown over the last few quarters appears to be more cyclical than structural. Valuations in parts of the market remain elevated, particularly within mid- and small-caps.

PREFERRED INVESTMENT STRATEGY: Alpha generation is likely to come from selective stock picking rather than broad market direction. A balanced approach across largecaps, which offer valuation comfort and resilience, and select mid-cap opportunities, which continue to deliver superior earnings growth, remains appropriate.

THEMES LOOKING ATTRACTIVE: Constructive on manufacturing, power and electrification, energy transition, select financials, particularly banks and capital-market-linked businesses, as well as export-oriented companies.

THEMES TO STAY AWAY FROM: Investors should avoid chasing momentum in overcrowded themes. In technology, we remain watchful of disruptions and pricing pressures emerging from AI-led changes in the global IT services landscape

SHANKAR SHARMA, Founder, GQuant

MARKET OUTLOOK: Barring occasional rallies, I do not see the Indian markets outperforming the world or even the peer group. The Vaibhav Suryavanshi Syndrome afflicts Indian companies: domestic success is mistaken for globally transferable skill. Largecaps have thrived on India’s easy pitch, building market capitalisation rather than global scale and brands. When domestic growth fades, competing overseas will require an entirely different mindset. There will be pockets where money is going to be made; but in aggregate, Indian returns will disappoint for the coming year.

PREFERRED INVESTMENT STRATEGY: The future of the Indian stock market lies in getting “techified”. Tech has been my theme in the last 2 years since the bear market started in India and I have actually made money even in this very-very tough market. This is not going to change anytime soon. Pharmaceuticals is also going to be a good place to be in.

THEMES LOOKING ATTRACTIVE: For me, tech is 80% of the allocation and pharma is 20% and there is nothing else that I am interested in India.

THEMES TO STAY AWAY FROM: Companies which service the domestic Indian consumer. That trade is on its way out and this is not where I would deploy a lot of capital.