Indian equities are shifting toward an earnings-driven market with significant opportunities at the individual stock level across market-cap segments, a report said
The report from Abakkus Mutual Fund urged investors 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.
Though headline valuations show market as expensive, significant dispersion exists within individual indices, said Vaiibhavv Chugh, CEO, Abakkus Mutual Fund, adding that around 45 per cent of stocks in the midcap index are trading below 30 times earnings, while around 40 per cent trade above 40 times.
The report said that earnings growth, addressable market, PE ratios and the ability of a business to sustain growth need to be considered alongside valuations to determine a stock’s potential.
The fund house mentioned 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, which has stayed consistent for the past 30-40 years, and earnings growth has roughly replicated nominal GDP growth,” Chugh said.
Recent geopolitical developments, higher crude prices, US interest rates and currency movements could create near-term volatility, but company-specific earnings resilience will matter more once these factors stabilise, the report noted.
The report cited opportunities in electric vehicles, cyber security, wealth management, asset management and medical tourism that contribute 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,” the report noted.
India’s economic resilience remains a key strength, the report said, adding that earnings across several pockets remain healthy despite market weakness, while GDP, per-capita income and industrial production continue to support the broader India growth thesis.
