Indian equities could deliver reasonably strong returns over the next three to five years, supported by improving earnings growth, resilient economic fundamentals and reasonable valuations, Rajesh Kothari, Managing Director of AlfAccurate Advisors, said in an interview with CNBC-TV18. "It is time to go all in. This is the time to go all in on equities as an asset class," Kothari said, arguing that investors should consider opportunities across large-, mid- and small-cap stocks. He noted that market indices have delivered limited returns over the past two years, with mid-cap and small-cap stocks also struggling to generate meaningful gains over the period.
Despite concerns over higher crude oil prices and interest rates, Kothari said India's economic indicators point to stronger underlying fundamentals than the prevailing macroeconomic sentiment suggests. He cited non-food credit growth of 17-18%, industrial credit growth of 20% and personal loan book growth of 16% as indicators of economic strength. Industrial credit growth had reached its highest level since 2011, with consumption, government capital expenditure and a resurgence in exports also supporting the economy. Kothari added that earnings growth is improving and becoming broader-based, with market valuations reasonable as the market trades below its 10-year average price-to-earnings ratio.
Kothari said foreign institutional investors (FIIs) continue to buy Indian equities despite concerns over their net selling activity. He urged investors to examine gross purchases and sales rather than focus only on net flows, which remain negative. According to him, foreign investors are reducing their exposure to companies that have failed to deliver in line with expectations, in some cases after holding them for many years. "I think FIIs are also buying India. It is not that FIIs are negative on India. The issue is more company-specific than country-specific," Kothari said, adding that gross FII purchases had remained strong, particularly over the past 12 months.
Kothari identified electronics manufacturing services (EMS), aerospace, contract development and manufacturing organisations (CDMOs), and auto ancillaries as areas with significant growth potential. In EMS, he pointed to government support through the production-linked incentive (PLI) scheme and the increased ability of Indian companies to scale up. Banking and financial services remain another area of interest, with credit growth of around 18%, strong asset quality and controlled credit costs as factors that could support returns. Speciality chemicals are gaining traction as India's export competitiveness improves, with Europe identified as a significant opportunity for Indian companies.
On upcoming initial public offerings (IPOs), including Jio's, Kothari said AlfAccurate is evaluating opportunities but has not yet decided whether to participate. He said India's mobile services industry has among the lowest average revenue per user (ARPU) levels, leaving room for improvement over the next two to three years. ARPU could rise by around 4-5% annually, with a greater focus on value-added products, solutions and services helping telecom companies improve margins. Kothari said the firm is evaluating several companies, including those preparing to list, but has yet to finalise its participation in the IPOs.
