India's equity market has evolved into an extremely bottom-up story with significant opportunities emerging across multiple sectors, according to Jefferies' Mahesh Nandurkar, Head of India Research & India Equity Strategist. As reported by CNBC TV18, while broader markets have remained largely flat over the last couple of years, several individual themes and stocks have delivered strong returns. Nandurkar emphasizes that investors should focus on companies with strong management and business models that can deliver on earnings expectations, noting that if EPS growth expectations are met or beaten, these stocks continue to deliver high returns despite valuations. However, he cautions that some small and mid-cap companies may fail to meet investor expectations, highlighting the importance of selecting companies with strong fundamentals.
The new manufacturing revolution is creating compelling opportunities in defence, space and electric-related manufacturing, as highlighted by Nandurkar in his analysis. Beyond manufacturing, he identifies power utilities, real estate and large-cap banks as attractive investment opportunities. According to the Jefferies strategist, the banking sector could perform well as investor expectations remain low, with management transition issues affecting some banks needing resolution, but established processes potentially helping these institutions deliver strong returns. The low expectations from the market and investors at the current point in time present a favorable environment for banking sector performance, as noted by Nandurkar.
The key challenge for Indian equities is rising equity paper supply through initial public offerings (IPOs), follow-on offerings, qualified institutional placements (QIPs), private equity exits and promoter block deals, as noted by Nandurkar. This increased supply could limit broader market performance and present headwinds for overall market growth. Additionally, rising oil prices could act as a relative headwind for Indian equities, despite the market's resilience in recent quarters. However, he believes the market could see much bigger upside once oil prices stabilize, despite current geopolitical concerns affecting crude oil markets.
Despite geopolitical concerns, corporate performance in the March and June quarters has remained resilient, with valuations becoming more interesting according to Nandurkar's assessment. He cautions that some small and mid-cap companies may fail to meet investor expectations, highlighting the importance of selecting companies with strong fundamentals. The strategist notes that foreign portfolio investor sentiment has improved over the past couple of months, while Foreign Currency Non-Resident (FCNR) deposits could help stabilize the currency. This improved sentiment and currency stability are supporting the overall market outlook despite current challenges.
Even if crude oil prices rise to $95–100 per barrel, India's current account deficit should remain well within 2% of gross domestic product (GDP) according to Nandurkar's analysis. This suggests that India's economic fundamentals remain resilient despite oil price volatility. The Jefferies strategist believes the market could see much bigger upside once oil prices stabilize, positioning India's equity markets for potential significant gains in the coming period. However, he acknowledges that rising oil prices could act as a relative headwind for Indian equities in the near term.
