IGI Logo

Indian equities are gradually transitioning towards an earnings-driven market, with significant opportunities emerging at the individual stock level across market-cap segments, according to Vaiibhavv Chugh, CEO, Abakkus Mutual Fund. The fund house believes investors need to look beyond aggregate valuations of large-, mid- and small-cap indices and focus on earnings growth, valuations and the long-term addressable market for individual companies.

Stock-level dispersion creates opportunities across market caps

While headline valuations can suggest that parts of the market remain expensive, significant dispersion exists within individual indices. Chugh noted that around 45% of stocks in the midcap index are trading below 30 times earnings, while around 40% trade above 40 times.

“What we are observing is that we need to now move away from midcap, large cap, small cap definitions, because at aggregate levels they may show a very different picture. However, if you look into individual stocks, the story is absolutely different.”

The fund house believes lower valuations alone do not constitute an investment case. Earnings growth, addressable market, PE ratios and the ability of a business to sustain growth need to be considered alongside valuations.

Short-term volatility could create long-term opportunities

Recent geopolitical developments, higher crude prices, US interest rates and currency movements could create near-term volatility, but Abakkus believes company-specific earnings resilience will matter more once these factors stabilise. The fund house sees current knee-jerk market reactions as potential missed opportunities over a four- to five-year horizon. “Ultimately, stock price return is equal to the earning growth. That has stayed consistent for the past 30-40 years, and earnings growth has roughly replicated nominal GDP growth.”

New growth sectors expand the small-cap opportunity

Abakkus sees sectors such as electric vehicles, cyber security, wealth management, asset management and medical tourism contributing increasingly to India’s economic growth. Many of these businesses are currently small- or micro-cap companies, creating opportunities as new sectors evolve alongside rising per-capita incomes.

Earnings resilience strengthens India’s long-term case

The fund house believes India’s economic resilience remains a key strength. Despite market weakness, earnings across several pockets remain healthy, while GDP, per-capita income and industrial production continue to support the broader India growth thesis.

Abakkus believes investors should avoid attempting to time short-term market movements and instead allow compounding to play out through a sufficiently long investment horizon.

Above views are of the author and not of the website kindly read disclaimer