BS BFSI Summit: Stock-picking, patience key as market turns bottom-up

At Business Standard's BFSI Summit, fund managers said equity investors must focus on fundamentals and long-term discipline as markets adjust after years of post-pandemic exuberance

Equity investors will need to rely on sound stock-picking and patience to generate superior returns in the coming years, said market experts at Business Standard BFSI Insight Summit in Mumbai.

 

The experts spoke at a panel discussion titled ‘Where Are The Market Opportunities — Where Should Investors Allocate?’ moderated by Sundar Sethuraman of Business Standard.

 

“We are at a stage where stock-picking becomes important. It’s very much a bottom-up market. The easy money that existed earlier is no longer available. Investors must remember that equities are a long-term asset class — requiring discipline, conviction, and a focus on fundamentals,” said Pramod Gubbi, cofounder of Marcellus Investment Managers.

 

 

On the moderate equity returns seen this year, panellists noted that the market is merely adjusting after years of excessive post-pandemic gains.

 

“We had four years of exuberance post-pandemic and are now witnessing a return to normalcy. But valuations still remain above historical averages. Between caution and optimism, it’s fair to say investors need to be cautiously optimistic. The core of equity investing is risk management — there are no obvious themes to play right now. Returns and earnings growth have both been in single digits, and valuations have time-corrected. Yet, markets are not exactly screaming buys either,” Gubbi said.

 

Manish Gunwani, head of equities at Bandhan Asset Management Company, said investors should maintain a long-term view rather than fixate on near-term valuations. "Over the long term, equities tend to deliver about 5–7 per cent above inflation So, investors need to be neither greedy nor fearful. While valuations may not be cheap currently, global government debt is at record highs — often a precursor to easy monetary policy. On a three- to five-year horizon, double-digit equity returns remain my base case," Gunwani said.

 

The experts observed that several positive policy measures — including higher income tax limits in the last Union Budget, rationalisation of the goods and services tax, and recent rate cuts by the Reserve Bank of India — have created a supportive environment for an economic and earnings recovery.

 

“We’ve had enough policy measures introduced. Large parts of the economy should begin to pick up. Although earnings growth has been patchy lately, it is likely to improve. Earnings estimates for the next two years may settle at mid-single digits after some revisions, still suggesting healthy equity returns compared to other asset classes,” said Gaurav Misra, head of equity at Mirae Asset Investment Managers (India).

 

Hari Shyamsunder, vice-president and senior client portfolio manager — emerging markets equity (India), Franklin Templeton, said the extent of disappointment in earnings was narrowing as catalysts for recovery gain traction. “Fiscal and monetary policy support has been tremendous, setting the stage for a strong rebound next financial year. Current earnings estimates are healthy. Even if we see some downward revisions, they may be limited this time, setting the market up well for the year ahead,” he said.

 

Gubbi added that the market appears to be near the bottom of its earnings downgrade cycle. “For six to seven quarters now, companies have consistently fallen short of analyst expectations, leading to earnings downgrades. This could be the first quarter where we see fewer downgrades. While earnings growth hasn’t improved dramatically, expectations have been reset lower. Looking to 2026-27, mid-teens earnings growth appears achievable. Markets move on expectations. With expectations beaten down, there’s room for positivity,” he said.

 

He further said that consumption-focused policy measures were well-timed, coinciding with the improvement in household balance sheets.

 

When asked how reform measures would impact the equity markets, Misra said investors must identify companies that can leverage these reforms to enhance profitability.

 

“We’ve seen some signs of improvement on the discretionary side, especially in automobile sales. When you add up the direct and indirect tax breaks, households will have more disposable income, and residential equated monthly instalments will become more affordable as rates come down. The India opportunity is structural and decadal, and it will be spread across market capitalisations. There will be winners across the board,” said Misra.