According to The Economic Times, Nippon India Mutual Fund's Equity CIO Sailesh Raj Bhan argues that Indian equities are currently offering rare discounts for investors after nearly two and a half years of flat markets. The market consolidation has taken away excess valuations and created opportunities to accumulate world-class businesses at sensible prices. Bhan notes that large banks are now available at 1.5 times price-to-book - proven enterprises that have delivered at reasonable valuations. The Nifty has given minimal returns over the last 2 years, but this consolidation period has helped reset valuations and prevent further market excesses.
As reported by The Economic Times, the market correction has been widespread, with about 30% of stocks falling more than 30% in the last two years. Unlike two years ago when there was nothing to buy at reasonable prices, today investors can choose from stocks that have fallen 50-60-70% in some cases. The correction has been across all categories - large caps, mid caps, and small caps alike, with below ₹10,000 crore market cap stocks experiencing much more correction. Bhan emphasizes that earnings growth has been reasonably good in mid-caps, making them more resilient than small caps and large caps during this period.
According to The Economic Times, Bhan's fund house maintains a core framework of sustainable growth at reasonable prices. The fund is overweight on large private sector banks by at least 200 basis points, with private banks now trading at only about 20% price-to-book difference compared to PSU banks. In IT services, they remain 300-400 basis points underweight due to AI disruption concerns, though expectations are running very low. The fund is positive on power utilities and pharmaceuticals, viewing them as currency beneficiaries with reasonable valuations. Banking sector opportunities include large private banks that can deliver ₹90,000-1,00,000 crore profits in two years at 12x earnings with minimal credit cost challenges.
As reported by The Economic Times, Bhan recommends a 70% equity / 30% debt allocation given current market valuations, compared to a normal 50% equity base. For moderate risk investors with 5-10 year horizons, he suggests a multi-cap approach with 50% large cap, 25% mid cap, and 25% small cap. Regarding gold allocation, he recommends treating it as a hedge with no more than 10% exposure, suggesting to sell gold appreciation and redeploy into equity or debt when it runs up to 15-20%. The strategy emphasizes accumulation for the first 1-2 years, with bigger returns expected in the third, fourth, and fifth years.
According to The Economic Times, Bhan believes markets will rise before FIIs return as net buyers, emphasizing that FIIs come back when their cycle turns. He notes that India's premium to emerging markets has collapsed from 86% to around 23-30% today, with the re-rating largely complete. The fund expects earnings growth of 7-8% for the current year, down from initial expectations of 14-15%, with the West Asia conflict potentially impacting earnings for at least two quarters due to inventory cycles. Bhan maintains that India's 6-7% real GDP growth over 15-30 years provides a strong foundation for long-term investment despite current market volatility.
