PNB MetLife CIO suggests investment themes amid trade risks, high valuation

India's structural strengths (6.5 per cent GDP growth, easing rates, tax cuts, GST normalisation, and rural demand recovery) support a H2FY26 rebound, said Sanjay Kumar

Domestic cyclicals — led by financials, autos, infrastructure, consumer, cement, and real estate — are expected to drive about 70 per cent of profit growth over the next two years, says Sanjay Kumar, chief investment officer at PNB MetLife in an email interview with Sirali Gupta. Edited excerpts:

What is your current investment strategy given high valuations and trade policy uncertainty?

Nifty 50 earnings per share (EPS) rose 8 per cent year-on-year in the first quarter of fiscal 2025-26 (Q1FY26) and is forecast to grow at a 13–14 per cent CAGR over FY25–27. Domestic cyclicals — led by financials, autos, infrastructure, consumer, cement, and real estate — are expected to drive about 70 per cent of profit growth over the next two years.

 

 

India’s structural strengths (6.5 per cent GDP growth, easing rates, tax cuts, GST normalisation, and rural demand recovery) support a H2FY26 rebound. Valuations look reasonable with Nifty trading at a trailing P/E of 21.8x versus a median of 22.1x, and pockets such as energy, banks, metals, consumer services, realty, IT and healthcare offering attractive risk–reward.

What are the key investment themes for 2025?

The key structural themes currently unfolding in Indian markets include:

 

Capital-market ecosystem: Financialisation of savings, rapid digitisation, and rising retail participation are strengthening domestic liquidity and creating growth opportunities for asset managers, intermediaries, and exchanges.

 

Consumption recovery: A revival in urban and rural demand, alongside lower short-term rates, should support growth across FMCG, autos, consumer durables, and discretionary categories.

 

Quick commerce and digitisation: Greater digital adoption and deeper e-commerce penetration are expanding addressable markets for tech, fintech, and logistics firms, driving strong top-line growth, margin improvement, and market-share gains for new-age companies.

 

Make in India: Policy support and PLI schemes are catalysing manufacturing investment, opening opportunities in capital goods, electronics manufacturing services, and broader industrials.

 

Infrastructure push: Higher budgetary allocations and elevated capex are creating multiplier benefits across cement, steel, and construction sectors.

 

Defence indigenisation: Import substitution and localisation initiatives are expected to underpin a multi-year growth runway for domestic defence manufacturers.

 

Any portfolio adjustments suggested following recent developments like the GST reform?

From a portfolio orientation perspective, our emphasis is largely towards domestic-focused sectors and companies in an otherwise challenging global backdrop, favouring early- and mid-cycle plays. Portfolio bias indicates rotating into GST beneficiaries (consumer goods, insurers, entry-level autos/financiers, housing chain, EMS, mid-tier hotels, consumer durables), with banks remaining a core overweight. The portfolio adopts a pro-cyclical stance, backed by reform tailwinds, valuation comfort, and lower downside risks.

Do domestic institutional investor inflows risk creating a valuation bubble by overlooking weak fundamentals, especially in the backdrop of tariff-related worries?

Stable macro conditions, a recovering earnings trajectory, and ample liquidity are essential for a healthy equity market. On the macro front, India benefits from an improving growth outlook despite near-term tariff risks, moderating inflation, controlled twin deficits, strong foreign-exchange reserves, and prudent balance-sheet management — all of which create a comfortable backdrop.

 

We gauge the bull market by earnings breadth. Q1FY26 showed narrow participation, though early green shoots are visible. Nifty EPS is projected to grow 13–14 per cent over FY25–27, in line with India Inc’s long-term median. More sectors — notably consumption, industrials, and export-oriented firms — must contribute, supported by positive earnings revisions. A sustained consumption recovery is critical. If earnings breadth expands (a higher share of companies reporting Y-o-Y EPS growth and net upgrades), the rally will remain anchored in fundamentals, which we view as the most likely path into H2FY26.

What specific indicators are you monitoring for potential trend reversals or market corrections?

Earnings momentum is constructive but uneven. Banks remain the anchor — with gross non-performing assets (GNPAs) at decade lows and contributing about 25 per cent of NSE-500 profits — providing valuation support ahead of an FY27 earnings ramp. Other sectors are set to join the recovery: autos face soft volumes but have demand triggers from proposed GST cuts, the festive season and easier policy; consumer staples show early recovery (FMCG valuations below trend); large-cap IT growth has moderated but margins are up 40–50 basis points (bps) and valuations sit below five-year averages; healthcare expects low double-digit growth with potential margin expansion, while cement and telecom are seeing upgrades. Overall, the 12-month market consolidation has improved the risk–reward for medium- to long-term investors.