Expert view: The Indian stock market is losing sheen as it has slipped to the seventh slot in global market cap rankings, making way for Taiwan and South Korea’s stock markets. The underperformance of the Nifty 50 has also put it on track to record the first annual decline after a decade of positive gains.
However, going ahead, Ashwini Shami, President & Portfolio Manager, Omniscience Capital, is optimistic that the end of the West Asia conflict and even moderate earnings growth could reverse the fortunes in favour of Nifty bulls.
The Nifty 50 is down over 8% YTD. Is it possible for the index to record its first annual decline in over a decade?
From a valuation perspective, the Nifty 50, at a price-to-earnings multiple of 20.3x, is trading below its long-term average. While the market could fall further for multiple reasons, valuations are not a major concern. Although FY27 margins may see some compression due to inflationary pressures, even moderate single-digit earnings growth, coupled with a market re-rating as the West Asia crisis eases, could result in double-digit returns for the Nifty from current levels.
India has recently been trumped by Taiwan as the fifth biggest market globally in terms of m-cap. Does this signal the need for global exposure to stocks?
As always, investors need to look beyond recent performance and focus on fundamentals. The fact that the Taiwanese and South Korean markets have surpassed India in terms of market capitalisation is noteworthy. However, these markets are heavily dominated by one or two stocks that account for 50–60% of total market capitalisation. From a portfolio construction viewpoint, this limits the breadth of investment opportunities available to investors. Furthermore, future return expectations should be moderated in these markets, as the valuation gap has largely disappeared and earnings growth projections should adequately reflect the cyclical nature of these companies.
For someone looking to create a long-term portfolio, what should be the ideal investing strategy?
We believe there are substantial investment opportunities available in the Indian market, even though there may not be many straightforward AI-focused stocks. A structured approach, such as the Scientific Investing Framework, can help investors build a diversified portfolio of 25–30 stocks across market capitalisations, with multiple growth vectors available at a significant discount to intrinsic value. If an investor already holds a well-constructed, Scientific Investing-inspired portfolio, there may be little need for frequent portfolio action.
IT has emerged as the worst sector this year. Can rupee tailwinds and oil shock reverse its fortune?
It is highly unlikely that strong earnings growth visibility will emerge in the IT sector within this year. The industry is expected to undergo significant AI-led disruption in both its service offerings and delivery models. Moreover, with oil prices moderating, the Indian rupee may recover some ground and which means that the rupee tailwind is unlikely to provide meaningful support to earnings going forward. While valuations across IT companies have moderated, growth uncertainty remains high, and the sector is not necessarily trading at a significant discount to intrinsic value.
Can you name top 5 sectors investors can look to invest in at this time?
We continue to remain positive on financial services companies, with public sector banks offering some of the most mispriced opportunities. Private sector banks, housing finance companies, and infrastructure-focused NBFCs are other segments that appear attractive. We are also positive on power sector companies, construction and engineering firms, as well as select logistics and business services companies.
Amid rising inflation, what kind of impact do you see for India Inc going ahead?
The fall in crude prices indicates progress toward a resolution of the West Asia crisis. We may see crude oil stabilise in the $60–$80 per barrel range, although prices are likely to remain elevated relative to pre-war levels until a final settlement is reached. At the same time, a sharp decline cannot be ruled out if increased production from other regions creates a temporary oversupply in global markets.
While inflation may put some pressure on FY27 margins, high single-digit earnings growth remains achievable. In addition, improving investor sentiment following a resolution of the West Asia conflict could support double-digit gains from the current levels.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.