Shridatta Bhandwaldar, Head Equities, Canara Robeco Asset Management Company, believes that the ongoing earnings season signals recovery to double-digit growth in FY26 and FY27. However, he believes, amid lack of valuation comfort, the Indian stock market is likely to undergo consolidation. He is bullish on two sectors — consumer discretionary and financials — over the next few years. Edited excerpts:
With easing inflation, renewed FII interest, and a thaw in global trade tensions, several macro indicators seem to be turning favourable for the Indian equity markets. However, the earnings recovery continues to lag. In this context, how do you interpret the current market resilience, and what is your outlook for Indian equities in the medium term?
Some of the global macro and domestic geopolitical situations have turned relatively more benign in the last few weeks. Indian macroeconomic environment has been good for some time now with low inflation, low leverage and controlled current account deficit. Cyclical challenge is of the corporate earnings growth (Nifty), which has slowed down in FY25 to high single digits from a healthy 20+% growth in FY24. This slowdown was an outcome of meaningful public capex deceleration accompanied by a relatively tighter domestic liquidity environment over the past 4 quarters. These factors are reversing gradually – 1) Domestic liquidity has moved from deficit into surplus in the last few quarters, 2) The public capex has normalised back to budgeted numbers, 3) There is a pivot towards mass consumption in state and central budgets and 4) Further improvement in Private capex / Real estate, supported by a healthy banking system remains a reasonable expectation. This is already visible in Q4FY25 corporate earnings season, where the earnings have turned out better than estimated, indicating possible cyclical recovery to double-digit earnings growth in FY26E/27E. However, with fair valuations in large caps and above-average valuations in mid/small caps, we expect the market to undergo consolidation as cyclical recovery plays out and then starts rolling over based on earnings growth outcomes.
Canara Robeco Emerging Equities has a strong tilt towards mid-cap over large and small-caps. Given the current market dynamics, do you believe mid-caps still offer a compelling risk-reward profile, or is it time for investors to realign towards large-caps?
Given that the strategy has a tilt towards predominantly mid-caps, we are focused on medium-term risk-adjusted returns. Given India’s diverse listed space and strong underlying nominal GDP growth rate, we believe that there are enough well-run and scalable businesses available from a medium-term to long-term perspective. We are focused on identifying superior earnings growth profile companies for the Canara Robeco Emerging Equities portfolio on a bottom-up basis, and we believe that there is enough scope to do that despite broader valuation challenges in the mid-cap space.
How do you assess quality in the mid-cap and small-cap space, especially when liquidity and governance risks can vary widely?
We tend to assess governance-related risks based on due diligence of the past track record, which is embedded in our investment process. We evaluate financials and the past track record of the management to assess both the ability to execute business better than peers and the intent to share outcomes with the minority shareholders. Liquidity risks are managed by having a limit and control structure on illiquidity criteria on mid and small caps.
Are there any structural themes that you’re particularly bullish on for the next 3–5 years?
We are constructive on Consumer Discretionary and Financials from the next 3-5 year view.
What’s the most common mistake you see investors making in their equity allocation, and how can they correct it?
Under-allocation to equity at a younger age tends to be a common mistake. This is invariably followed by an inability to re-look at asset allocation when the margin of safety erodes in parts of the owned portfolio. Seeking professional advice on investment decisions and asset allocation at the initial stage of investment journey, can help to avoid such mistakes and contribute towards long term wealth creation.
You’ve spoken in the past about bottom-up stock picking being key to your strategy. Can you walk us through a recent example where this approach contributed to alpha?
We can’t talk about stocks, unfortunately. But sectors like Industrials, Hospitals, Hotels, Telecom and Aviation are good examples over the last 3 years of our bottom-up stock selection strategy to understand differentiated earnings growth leading to sizable contribution to alpha.
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.
