Expert view: Sorbh Gupta, the head of equity at Bajaj Finserv Asset Management, believes several factors create a compelling setup for Indian equities to outperform other emerging markets in the coming period. In an interview with Mint, Gupta said that at the current levels, the risk-reward profile appears balanced for long-term investors. Besides, he emphasised that opportunities continue to exist in the mid- and small-cap segments, even as large caps offer relative valuation comfort. Edited excerpts:
It’s been over two years of underperformance of Indian equities. How do you see the road ahead?
Indian equities have underperformed both in emerging and developed markets. But the tide is turning.
We are seeing early signs of a cyclical earnings recovery in corporate India, and that should increasingly reflect in stock prices over the coming quarters.
As AI-driven optimism eases, investors are increasingly focusing on markets supported by strong fundamentals.
Additionally, the easing of the Middle East crisis provides meaningful relief to India’s balance of payments, while the RBI’s proactive monetary stance and the government’s move to ease taxation on FPI debt flows further help reduce BoP pressure.
Taken together, these factors create a compelling setup for Indian equities to outperform other emerging markets in the coming period.
Why should retail investors remain invested at this time? Should they wait for a better entry point?
Investors often spend too much time waiting for the perfect entry point and end up missing opportunities.
Valuations have corrected meaningfully after eighteen months of time consolidation and are now in a genuinely comfortable zone.
With earnings expected to accelerate over the next one to two years, this is the time to increase equity allocation, not reduce it.
For systematic investors, the focus should remain on discipline rather than market timing.
Consistency over time remains one of the most effective ways to build wealth. For those considering lump-sum deployment, a three-month STP is a measured way to enter without the anxiety of market timing.
At current levels, the risk-reward profile appears balanced for long-term investors.
DIIs have been buying domestic stocks while FPIs have been selling aggressively. Do you see this trend continuing this year?
DII inflows, both through SIPs and lump sum routes, will remain consistent regardless of near-term market events.
On the FPI front, the outlook is improving. Stronger earnings growth, more reasonable valuations, and lower pressure on India’s external finances could provide a supportive backdrop for foreign investor participation in Indian markets.
We expect the trend of FPI outflows to reverse into inflows as these developments get more widely recognised in global markets.
Geopolitical risks have eased. Do you see other risks that retail investors might be overlooking at this juncture?
Risk is an inherent part of equity investing; the important thing is to keep the bigger picture in mind.
The pressure on markets from India’s external finances has eased significantly.
While a slightly below-normal monsoon remains a factor to watch, we do not see it as a major risk for equity markets at present.
Reacting to short-term market movements can often hurt long-term returns.
Investors who stay focused on their long-term goals and remain invested in a well-diversified portfolio of quality companies are likely to benefit over time.
With corporate earnings expected to improve, we believe equities remain well-positioned for long-term growth.
Where should we invest? Which sectors or themes can generate alpha in the medium term?
While large caps offer relative valuation comfort, opportunities continue to exist in the mid-cap and small-cap segments. However, stock selection remains critical.
Not everything is cheap, and not everything is expensive. Valuations vary significantly across companies, making a disciplined and selective approach important.
For long-term investors, diversified small-cap or flexi-cap strategies can provide a structured way to participate in these opportunities through active stock selection.
From a sector perspective, pharma, healthcare and wellness stand out as key megatrends.
Rising health awareness, favourable demographics and increasing healthcare spending continue to support long-term growth opportunities in these areas.
We are also positive on financials, especially large private sector banks. From a tactical perspective, financials, particularly large private sector banks, remain an area of focus.
The sector has underperformed over the past few years, while valuations appear relatively reasonable compared to historical levels.
As conditions improve, we believe this segment has the potential to deliver better performance going forward.
How do you see investors’ exuberance over AI? Is it time to turn cautious on it, or is there more steam left?
The movement in AI-related stocks and the adoption of AI use cases have seen a sharp rise over the past few years.
However, we expect some cooling from current levels in the near term.
From a medium- to long-term perspective, the case for AI remains firmly intact, as it is likely to play an increasingly important role in shaping how businesses, industries and the global economy function.
That said, valuations of some AI-related companies globally have reached elevated levels and may be ahead of their underlying fundamentals.
As a result, we believe some moderation in valuations is likely from here. Investors should therefore distinguish between the long-term potential of AI and near-term valuation considerations.
In our view, the appropriate approach is to remain invested with a long-term perspective while maintaining realistic return expectations and avoiding excessive enthusiasm around the theme.
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Disclaimer: This story 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.