Despite foreign investors pulling money out of Indian equities, Amit Premchandani, Fund Manager (Equity) at US AMC, believes the market story runs deeper. He argues that valuations, earnings quality, and sectoral opportunities matter more than short-term flows, and highlights why large caps, BFSI, Healthcare, and autos remain attractive bets.
Edited excerpts from a chat:
Sensex and Nifty have failed to beat bank FDs in the last one year. Do you think that most of the time correction is behind us and that the growth trajectory should be back soon?
Historically long-term returns of equity as an asset class are much superior to bank FDs; short-term volatility is part and parcel of equity as an asset class.We do not predict market levels. What we focus on is valuations, which are now in a fair value zone for large caps. Small and mid-cap remains expensive. We have an internal model for asset allocation which is used for equity allocation in some of our asset allocation strategies, and that model is suggesting around 65-70% asset allocation to equity, which has moved up by ~5% over the last few months.
Market cap of companies is essentially the discounted cash flow of future earnings. It does not change materially based on short-term events. What changes surely is the narrative, so stocks which were riding on narratives are relatively more at risk than those which are backed by solid underlying growth.
Also, we need to consider the macro shock in terms of a sharp increase in US tariffs on goods and it’s impact on global growth as well as impact on India, given we have been subjected to one of the highest tariffs.
FII selling has created pressure on Indian equities. we saw the Q1 earnings season doing little to change investor opinion. When do you think we can expect broad-based double-digit earnings growth once again?
The earnings season was broadly in line with marginal cuts in earnings estimates, unlike the last few quarters which have seen higher cuts in earnings. However, the quality of earnings was slightly below par as the cyclical/commodity-oriented sector drove the marginal beat.
Topline growth has remained muted for some quarters now; though, EBITDA margins expanded in Q1 while PAT growth was marginally ahead of expectations, driven by oil & gas and cement. Nifty earning growth was around 8% driven by telecom and a few banks. Mid-cap earnings growth was higher than large cap while small cap saw earnings disappointed.Metals (Ferrous), OMCs, cement reported broad improvement in earnings trend driven by margins.
Which sectors do you believe will lead the next leg of market growth?