According to JioBlackRock CIO Rishi Kohli, the Nifty may be approaching an inflection point after two years of largely flat returns. As reported by The Economic Times, Kohli notes that largecap stocks have de-rated by around 10%-15% from their long-term averages, creating potential room for a shift in market leadership. The CIO expects the market to remain volatile, with IT still facing a difficult medium-term outlook, while banks and other largecap sectors could eventually pull the benchmark higher. Recent developments show that earnings have come in much better than originally expected, with the backdrop improving compared to last year on a quarter-on-quarter basis, though oil spikes and rising bond yields continue to create market uncertainty. Valuations have de-rated to roughly a 10–15% discount to the 10–15 year average, depending on the period used, with relative valuation ratios between small/mid and largecaps looking stretched.
According to Anand Rathi's Feroze Azeez, Indian equities may be due for a recovery after two years of underperformance, with historical returns and continued domestic institutional buying offering support. As reported by The Economic Times, Azeez notes that "Mean reversion is favouring India" and does not expect a sharp market correction unless both foreign institutional investors (FIIs) and domestic institutional investors (DIIs) turn sellers. Historically, the Nifty has delivered positive returns in the three years following a two-year period of price stagnation, with the Nifty's mean return at 14% and median return at 11%, while the probability of delivering more than its median return over three years is about 80%. The CIO highlights that over the last 10 years, earnings have grown faster than prices, with Nifty 50 companies' cumulative profit rising from around ₹3 lakh crore in 2016 to around ₹9 lakh crore now, implying 12.9% compounded growth while prices have grown 9.3%.
As reported by The Economic Times, Indian banks have significantly underperformed global peers despite stronger growth prospects. Kohli highlights that Indian banks have underperformed by anywhere from 35% to 100% versus global banks over the last two years, which doesn't make sense given that Indian banks trade at lower P/E, lower PEG, and comparable ROEs to better emerging-market banks. Large private banks now look considerably more attractive compared to PSU banks, which have had their run and aren't looking bad, but private banks' growth is picking back up while PSU growth has stagnated. On a relative basis, Indian banks have actually done okay versus the Nifty over the last two years, but versus global banks, the underperformance gap remains significant. The gap is the kind of setup that eventually draws long-only and hedge fund flows rotating out of global and EM banks into better Indian names - if this trade plays out, given banks' large index weight, it would lift the largecap indices meaningfully. Banks in particular look like they're at some of the best valuations we've seen, specifically large private banks, making them attractive for long-term investors.
According to Kohli's analysis reported by The Economic Times, the nascent recovery in Nifty that emerged after the Q1 earnings season has now petered out. Key drivers include oil spikes and rising bond yields, with domestic yields now above 7% at 7.15%, a level where they've stopped twice before. The CIO notes that markets dislike uncertainty more than they dislike bad news itself, creating current market volatility. Rising yields, if they rise gradually, have historically not been a problem for markets, with analysis showing markets only get rattled when yields move by more than roughly 1.5-2% on a rolling 12-month basis. Excess liquidity is now becoming a problem of its own, because it isn't being absorbed easily, creating a combination of factors that creates uncertainty. Oil should settle down eventually, but yields are trickier, as we're clearly not in a rate-cutting cycle - there's a good chance they go higher given where global yields are headed. The FCNR step RBI took was positive for the currency and the external deficit picture, but the broader environment of declining, low rates that we saw for years is clearly over, with rates having been rising for a while now.
As reported by The Economic Times, Kohli's FlexiCap fund maintains around 65% largecap weighting, ranging between 60% and 70%. The fund's turnover runs at roughly 3% a week, or 150% annually, largely due to the long tail of smallcap positions. The CIO expects the next phase may not be a broad-based rally, with the market remaining volatile as IT still faces challenges while banks and other largecap sectors could eventually support broader indices. Azeez's Anand Rathi fund now oversees ₹1.06 lakh crore in assets under management (AUM), up sharply from ₹32,000 crore four and a half years ago, showing significant growth in the wealth management sector. SIP inflows have remained very strong, staying in the ₹30,000 to ₹32,000 crore range, while HNI participation in equities appears to have moderated in some months, including May and July, with some incremental HNI money moving towards AIFs and PMS products. The overarching goal is the best risk-adjusted return: lower active risk and tracking error alongside alpha comparable to the best funds - this philosophy is behind their products, with the Sector Rotation fund maintaining consistent overweights in pharma and banks while keeping IT as a consistent underweight.
