R. Sivakumar, chief investment officer of Axis Mutual Fund, indicates large-cap stocks are becoming attractive after a correction, suggesting favorable conditions for investors. According to latest reports from Mint, large-caps are trading more than one standard deviation below their long-term averages, meaning investors are paying relatively less to own large companies compared with their own historical valuations. However, Sivakumar stresses that "I'd stress, not absolutely cheap" - the market conditions provide opportunities to enter large-caps at more reasonable valuations but don't indicate absolute cheapness in absolute terms. System credit growth has improved significantly from around 10% a year ago to 16-18%, with banks showing clean asset quality and margins needing only RBI-signaled rate hikes. Franklin Templeton's Arihant Jain adds that large-caps are being valued against more modest 10% to 12% earnings growth expectations, leaving greater room for earnings upgrades and valuation re-rating compared to mid- and small-caps priced for 20% to 30% growth.
R. Sivakumar, chief investment officer of Axis Mutual Fund, sees significant opportunities in manufacturing, particularly exports, with a focus on mid- and small-cap companies. According to reports from Mint, India accounts for under 2% of global manufactured goods exports, indicating substantial room for growth. The rupee depreciation benefits exporters, while new free trade agreements with the European Union and the UK bring India to tariff parity with countries like Vietnam and Bangladesh. Latest fund performance data shows the quant Manufacturing Fund delivering 14.34% annualised returns over the last 1 year, demonstrating strong performance in this manufacturing-focused theme.
Domestic private capital expenditure has finally turned positive, with aggregate capex appearing slow only due to infrastructure softness. As reported by Mint, when stripped out, private capex shows improvement. The auto ancillaries sector is positioned as a strong theme as the ICE-to-EV shift reconfigures global supply chains. Additionally, policy-driven areas including semiconductors and electronics manufacturing services under production-linked incentive schemes, along with defence sectors, present attractive opportunities. Recent fund allocation data shows increased exposure to manufacturing sectors, with the quant Manufacturing Fund maintaining a 76.93% portfolio concentration in manufacturing-focused companies.
Speaking about mid- and small-caps, Sivakumar acknowledges they look expensive on a standalone P/E basis but emphasizes that "that's where the growth is". When Nifty earnings were growing around 8%, mid- and small-caps were compounding 15%-plus, and that acceleration continues even as Nifty-level earnings are picking up. "A stock at 30-40 times on 30% earnings growth looks very reasonable a year or two out" - the real question isn't the multiple but whether the growth is real. However, he notes that mid- and small-caps are trading about one standard deviation above long-term averages, creating some valuation risk, and advises caution where expectations have run ahead of fundamentals. He recommends diversification into multi-cap or flexi-cap funds for those only invested in small-caps. Franklin Templeton's multi-factor fund maintains around 80% exposure to large-caps due to the benchmark composition and portfolio construction approach.
Sivakumar advises caution in several sectors including IT, consumer staples, power, auto ancillaries, defence, and electronics manufacturing. As reported by Mint, IT rallies are reflexive to global semiconductor movements but lack quarter-on-quarter growth momentum, while consumer staples remain weak despite slight improvement. In power, prices reflect billions of dollars in unfulfilled data-centre orders, creating de-rating risks for companies unable to meet expectations. Recent fund performance data shows quant Tech Fund maintaining a cautious stance with 21.30% exposure to IT sector, reflecting the manager's selective approach to technology investments. Franklin Templeton identifies private banks and metals as attractive opportunities given current valuations and market conditions, with the fund's multi-factor approach allowing for tactical positioning while maintaining core exposure to quality, value, and momentum factors.
