While a 12-13% earnings growth rate may not seem particularly strong at first glance, we believe it represents a credible target given the prevailing global uncertainties, he said in an interview with ET Markets.
Edited excerpts from a conversation:
What is your outlook on equity markets for the next 12–18 months, considering global uncertainties and domestic growth trends? Is this the time to buy the fear?
The global environment remains highly volatile, with uncertainties surrounding tariff-related actions by the new U.S. administration. On the domestic front, conditions appear to be improving, as high-frequency indicators suggest a return to growth normalization. Following the market correction over the past six months, valuations—particularly for large-cap stocks—now seem reasonable. Consequently, our outlook for equities has improved from a 12- to 18-month perspective.However, given the inherent volatility of equity markets, we believe investors should adopt a long-term perspective, ideally with a minimum investment horizon of three to five years. Equity investments should be limited to funds that investors do not anticipate needing for at least the next three years.
For such long-term horizons, the outlook for Indian equities remains positive, supported by favorable demographics. India’s large and young population aspires to improve their standard of living, including better housing and automobiles. These fundamental aspirations alone can drive substantial economic growth. Additionally, various other evolving societal needs, when met, will further contribute to economic expansion and equity market returns.Thus, we maintain that the long-term outlook for Indian equities remains highly constructive, and in our view, equities continue to be the most effective asset class for long-term wealth creation.
With interest rate cycles shifting globally, how do you see Indian markets reacting in the near term?
Following a period of relatively synchronized central bank policy actions, we are now witnessing divergence in interest rate cycles across the globe. While the U.S. Federal Reserve maintained the status quo on interest rates in its latest monetary policy, the Reserve Bank of India (RBI) implemented its first rate cut in five years in February. Furthermore, the likelihood of an additional rate cut in the upcoming April policy review remains reasonably high. Meanwhile, Japan’s central bank is expected to hike interest rates in the coming months.Equity markets generally favor lower interest rates, and further rate cuts by the RBI would provide additional support to market sentiment. However, while interest rates are an important factor, they are not the primary concern for equity markets in the current environment. In our view, the key determinant of equity market outlook remains the progress toward a revival in economic activity and corporate earnings growth over the next few quarters.
Which sectors do you believe hold the most promise for long-term investors, and why?
The banking sector is attractive from a risk-reward perspective. While earnings growth may moderate as credit costs normalize from historically low levels, we still expect banks to deliver strong returns on equity (ROEs). With most banks currently trading at a discount to their historical price-to-book (P/B) multiples, we believe private banks offer a compelling opportunity to generate returns above the broader market.
Companies and sectors well-positioned to meet the evolving needs of India’s growing population may present the most attractive long-term investment opportunities. The success of businesses in the food delivery and quick commerce segments—both uniquely suited to the Indian market—demonstrates the potential for high-growth opportunities within the broader consumption sector. Additionally, the financialization of the economy continues to create compelling businesses.
We also see significant potential in the domestic manufacturing sector, particularly in areas such as energy transition, electronics manufacturing, railways, and defense, as these segments offer strong growth potential and earnings visibility over the medium term.
However, investment outcomes are largely determined by the price paid, making it crucial to remain mindful of valuations at all times.
How do you approach asset allocation in a volatile market scenario to ensure consistent returns for policyholders?
Asset allocation is a critical component of financial planning, and a well-structured asset allocation framework can help investors achieve superior risk-adjusted returns. In this context, the role of an experienced financial planner becomes crucial, as asset allocation decisions must be tailored to an individual’s specific needs and financial situation. While every investor aims to maximize returns, the focus should be on making strategic asset allocation decisions that align with their unique financial goals and risk tolerance.
In recent years, there has been a noticeable shift in saving patterns. Traditionally, savings were concentrated in physical assets such as real estate and gold; however, there is now a gradual transition toward financial assets, including insurance, mutual funds, and direct equity investments. We believe this shift represents the early stages of a structural transformation, one that is likely to continue for many years.
As the financialization of savings accelerates, the importance of efficient asset allocation becomes even more pronounced. Given the complexities involved, we strongly recommend seeking professional financial advice to optimize asset allocation and enhance long-term wealth creation.
With the launch of the Bajaj Allianz Life Focused 25 Fund, how does a concentrated portfolio of up to 25 high-growth potential stocks provide an edge over diversified funds, and what makes this strategy particularly relevant in the current market environment?
The growing Indian economy and flourishing entrepreneurship have created several compounders for equity investors. However, few companies outperform others over a longer period of time. For example, over the last five years, within the Nifty 100 index, more than 70% of the overall index return was contributed by 25 stocks. Identifying such winners and allocating large weights to such stocks in the portfolio is likely to generate better portfolio returns.
What are your expectations from the Q4 earnings season? Do you believe the worst of the downgrades is behind us, and are we now entering a phase of gradual earnings recovery and growth?
The outlook for Q4 FY25 earnings indicates a marginal improvement compared to the trends observed in the previous three quarters. As a result, we expect FY25 to conclude with mid-single-digit earnings growth for the Nifty 50, marking a multi-year low.
However, the focus has now shifted to FY26 earnings, which we anticipate will grow by 12-13%, following a 5-6% earnings downgrade over the past six months. While a 12-13% earnings growth rate may not seem particularly strong at first glance, we believe it represents a credible target given the prevailing global uncertainties.
Looking ahead to FY27, early estimates suggest a similar 13% earnings growth. If achieved, this would support India’s ability to maintain its relatively premium valuation multiples.
