Expert view on markets: Chander Bhatia, Chief Investment Officer at Seers Fund Management Private Limited, believes large-caps may grow by 10–11% CAGR over the next 3–4 years, whereas mid-caps and small-caps may grow by 13–15% during the same period. He expects the overall direction of the Indian stock market to remain positive due to the positive domestic factors. In an interview with Mint, Bhatia shared his outlook for the market and shared his views on the Indian rupee and economy. Here are edited excerpts of the interview:
What is your assessment of the domestic market’s performance this year?
Generally, it is challenging to predict the market in the short term, as it is impacted by news flow and the emotions of market participants.
The Indian market has been consolidating for the last 15 months, and a lot of froth is already out of the system.
The government and the RBI have recently taken many positive steps, such as increasing the income tax limit, reducing rates and rationalising GST, and maintaining a benign monetary policy to revive consumer sentiment and encourage industry to invest.
In this background, the market looks interesting and is most likely heading for a new high in the current financial year.
Going into the new year, what is your outlook for the large caps, midcaps and smallcaps?
The outbreak of COVID in the first quarter of 2020 created panic, and the markets made a sharp bottom in Mar’20. Thereafter, the market went up significantly for four years, till Sep’24.
Mid-caps and small-caps did very well in that phase. Many companies became multi-baggers, and crores of new investors joined the market in excitement.
The number of unique investors was hardly 3.1 crores prior to Covid, and it has recently crossed 12 crores, a huge increase of almost four times.
Therefore, some consolidation was needed, and it has taken place over the last 14–15 months. The correction and consolidation were steep in small-caps and mid-caps.
After this correction cum consolidation, which is either completed or likely to be completed soon, the market is expected to begin its upward journey in the new year.
Large-caps are likely to generate 10–11% CAGR over the next 3–4 years, whereas mid-caps and small-caps are likely to grow by 13–15% during the same period.
The journey in the market is never linear, as it keeps correcting in between.
However, the overall direction should remain positive, and the market has a long runway of growth due to many positive factors in India.
Do you find the narrative behind strong growth losing momentum? What does a weak nominal GDP indicate?
I don’t think growth will lose its momentum in India. There are multiple positive factors playing out in favour of India, which are structural in nature.
Due to benign inflation, which was around 1% in September, nominal GDP is lower, whereas real GDP is strong. Over the next few months, inflation is likely to rise slightly due to the lower base and is expected to remain in the range of 3–5%.
The model we are working with assumes real GDP growth of 6.5–7.5%, inflation of 3–5%, and nominal GDP growth of 10–11% over the coming years.
Although the last year has seen pressure in the market, with FPI selling and rupee depreciation in the news, this is likely to reverse soon, because a large, high-growth economy with a healthy fiscal position and strong corporate balance sheets cannot be ignored for long.
The rupee is at record lows. Is there more pain ahead?
The pace of rupee depreciation against the USD in the current financial year is surprising, as it has fallen by 5.1%.
Tariffs imposed by the US, volatile geopolitics, and the eternal preference of Indians for gold, which is imported, have contributed to the sharp depreciation of the rupee.
Overall, the fundamentals of the Indian economy remain strong due to high GDP growth, lower inflation, and robust FDI inflows.
Global giants such as Amazon, Google, and Microsoft have recently announced investments worth billions of dollars, and together these three companies plan to invest 70 billion dollars.
The worst for the currency appears to be over, and it now seems to be heading either for a period of consolidation or for some appreciation in the coming months.
Which sectors do you see value emerging now?
The recent correction and consolidation have brought valuations in multiple sectors to reasonable levels. Many companies reported healthy growth in both top line and bottom line in the recent quarters, even though their share prices are down by 20–30%.
The capital-markets-related theme, particularly companies providing multiple services such as brokerage, wealth management, and AMC, is a decadal opportunity, and the current correction has provided another attractive entry point.
Besides this, select real estate stocks, auto-ancillary names, companies in the cooling industry, select pharma stocks, and capital goods companies are attractive investment opportunities.
Two years ago, we were very bullish on NBFCs, and the stock we picked then has since tripled. Now, we remain reasonably bullish on NBFCs.
How do you pick stocks for investment? What are the key things that you keenly observe?
We follow a very robust process for selecting companies, using both top-down and bottom-up approaches, and take a 360-degree view of a company before investing.
The quality of the promoters and management is the most important factor.
Our hunting ground is sectors that have a long runway of growth and quality companies available at reasonable prices.
We prefer companies where promoters have skin in the game, there is no pledging of shares, the balance sheet is robust, the PEG ratio is reasonable, the sector outlook is healthy, and the company’s expected growth is higher than nominal GDP.
Since we are long-only investors with a very long-term perspective, the entry point in most companies is generally at a discount to fair value.
Once we pick a stock, we closely track not only the company but also the sector.
In addition to performance, announcements, and commentary from our portfolio companies, we monitor what the competition is doing, whether our portfolio company is gaining market share, what new products or services are being launched, and any red flags that may arise, such as tax authorities’ demands or investigations.
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Disclaimer: This story is for educational purposes only. 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.
