Expert view: Srinivas Rao Ravuri, Chief Investment Officer (CIO), Bajaj Life, is optimistic about the Indian stock market, as he believes the domestic market may deliver healthy double-digit returns over the medium term. In an interview with Mint, Ravuri pointed out that the stock market typically looks beyond near-term uncertainties and responds positively to improving fundamentals well before they become evident in reported earnings. Edited excerpts:
Nifty’s performance over the last two years has been disappointing. When can we expect a trend reversal? What is your medium-term outlook for the market?
The Nifty 50’s muted performance over the past two years reflects a phase of consolidation rather than a structural change in the market’s trajectory.
Earnings growth moderated to single digits during FY25 and FY26, while heightened geopolitical uncertainties and a global preference for AI-driven markets weighed on investor sentiment and capital flows towards India.
Looking ahead, we believe the outlook is turning increasingly constructive.
Consensus estimates suggest Nifty50 earnings could grow at around 15% CAGR over the next two years, supported by improving domestic demand, moderate inflation, lower interest rates and continued policy support.
At the same time, geopolitical risks have eased somewhat, and while the exceptional outperformance of global AI-related stocks appears to be moderating, allowing investor attention to broaden beyond a narrow set of themes.
History also offers reason for optimism. Indian equities have witnessed similar periods of subdued returns in the past, followed by phases of strong wealth creation.
Such consolidations help reset valuations and create a healthier foundation for the next leg of the market.
India’s long-term growth drivers—favourable demographics, formalisation of the economy, rising financialisation of savings and sustained reforms—remain firmly intact.
Against this backdrop, we believe the risk-reward for equities is favourable and expect Indian markets to deliver healthy double-digit returns over the medium term, driven primarily by a recovery in corporate earnings.
How do you see the current valuation of the market? As earnings recovery may be delayed due to the impact of the Middle East conflict, is this market worth investing?
Valuations today appear far more balanced than they did a couple of years ago. Following an extended period of market consolidation, the Nifty 50 is now trading close to its long- term average valuation multiples, making the market considerably more attractive from a medium-term investment perspective.
The recent Middle East conflict had initially raised concerns around higher crude oil prices and the consequent impact on corporate earnings.
However, the situation has evolved more favourably than anticipated. At one stage, elevated crude prices posed a potential 7–8% downside risk to FY27 Nifty50 earnings.
With oil prices retreating sharply and supply disruptions remaining limited, the likely earnings impact has now moderated to around 2–3%.
The decline in prices of several crude-linked imports, including fertilisers, chemicals and other commodities, is also expected to support corporate margins across sectors.
This combination of normalised valuations and improving earnings visibility strengthens the investment case for Indian equities. Markets typically look beyond near-term uncertainties and respond positively to improving fundamentals well before they become evident in reported earnings.
While geopolitical developments will continue to influence sentiment in the short term, we believe India’s structural growth drivers remain firmly intact. For investors with a medium-to long-term horizon, the current environment offers an attractive opportunity to participate in the next phase of earnings-led market growth.
Consider the erratic FPI trend. Is it time to trim exposure to large-caps and increase to mid and small-caps?
We do not believe this is the right time to make a tactical shift away from large-caps in favour of mid- and small-caps. Our preference is to remain balanced across market capitalisations, with stock selection likely to play a bigger role than market-cap allocation over the medium term.
While large-caps currently enjoy a valuation advantage after a prolonged period of underperformance, select mid- and small-cap segments continue to offer superior earnings momentum.
This creates a reasonably balanced opportunity set across the market.
The FPI flow picture also deserves a nuanced interpretation. Foreign investors have been net sellers for an extended period, leading to a meaningful reduction in India’s weight in many global portfolios.
This has largely been driven by a temporary preference for AI-led investment themes in developed and some emerging markets rather than any deterioration in India’s structural fundamentals.
As global allocations broaden beyond a narrow set of AI beneficiaries, India’s underweight positioning could reverse.
In such a scenario, large-cap stocks are likely to be the biggest beneficiaries given their higher FPI ownership and superior liquidity. We therefore see no compelling reason to reduce large-cap exposure at this stage.
A balanced portfolio with a focus on high-quality businesses across market capitalisations remains the most prudent investment approach.
What sectors are you bullish on for the next 1-2 years? What are your views on the IT pack?
We continue to prefer sectors where earnings visibility is improving, and valuations remain supportive.
Our top preference is private sector banks. Credit growth is expected to remain healthy, asset quality is benign, and margins appear to be near a cyclical bottom.
With balance sheets remaining strong and valuations still reasonable, the sector offers an attractive risk-reward over the next one to two years.
We are also constructive in the pharmaceutical sector. Indian pharma companies have a healthy product pipeline, and they continue to benefit from improving opportunities in both domestic and export markets.
Despite recent outperformance, valuations are reasonable in most cases, making the sector attractive from a medium-term perspective.
Within the power and capital goods space, the earnings outlook remains robust, supported by strong order books and ongoing investments in power infrastructure.
However, valuations have become quite demanding. If the current AI-led market leadership broadens or reverses, these richly valued stocks could see greater pressure despite their healthy earnings outlook.
For the IT sector, our stance has turned incrementally positive. After an extended period of underperformance, valuations have become more attractive.
While global macro uncertainties remain, a weaker rupee supports earnings, and we expect large-cap IT companies to deliver healthy double-digit earnings growth. Any recovery in discretionary technology spending could provide additional upside.
How do you see India’s growth-inflation dynamics now? Should we brace for aggressive monetary tightening this year?
India’s macroeconomic outlook has improved materially over the past few weeks.
At the peak of the Middle East conflict, concerns around a sustained rise in crude oil prices had raised the risk of higher inflation, a wider current account deficit and tighter monetary policy.
However, with crude prices retreating sharply and supply disruptions remaining limited, these risks have moderated significantly.
If crude remains around current levels, the likelihood of further hikes in petrol and diesel prices also diminishes, reducing the probability of a broad-based inflationary impulse.
This should provide the RBI with greater flexibility to balance inflation management with the objective of supporting growth.
Against this backdrop, we do not expect an aggressive monetary tightening cycle. At most, there could be limited policy action of around 25–50 basis points if inflationary pressures were to re-emerge, but the case for a series of sharp rate hikes appears weak.
The RBI’s decision to introduce the FCNR deposit scheme is also a timely measure to bolster foreign currency inflows, support the rupee and strengthen domestic liquidity, reducing the need for monetary tightening.
Overall, India’s growth-inflation dynamics appear significantly more balanced today than they did just a few months ago, which is constructive for both the economy and financial markets.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
