India’s equity markets may be entering a more selective phase — one where earnings growth, valuation discipline and stock selection could matter more than simply being invested. As domestic SIP flows deepen and domestic households increasingly embrace financial assets, the long-term wealth creation opportunity remains significant, but investors may need to be more discerning about where they put their money.
In an interview with businessline, Baldev Prakash, MD & CEO, SBICAP Securities, shared his outlook on the next leg of wealth creation in Indian equities and the growing role of domestic investors.
Edited excerpts:
Where do you see the next big opportunity for wealth creation in Indian equities?
The wealth creation opportunity exists around multiple sectors and across market cap cohort. We are positive on Banks, NBFCs, Capital Market/ Wealth management, Defence and Aerospace, EMS, Power and transmission, Precision engineering, Pharmaceuticals, Auto and auto ancillaries, Building Material and select new-age businesses.
The underlying theme for wealth creation is earnings growth, rather than a broad-based expansion in valuations. After the correction we have seen, the market is moving towards an earnings-driven phase, and companies that can compound earnings sustainably will be rewarded.
For investors, the key is to identify businesses where earnings can compound at 15–20 per cent or higher over several years, rather than simply chasing stocks that have performed well recently. In the next phase, I expect stock selection and valuation discipline to matter much more than simply being invested in the market
Is India shifting from a broad market rally to sector-specific wealth creation?
Yes, I think we are moving towards a more selective market. The phase where liquidity alone could lift most stocks is gradually giving way to a market where earnings visibility will determine performance.
Which sectors do you see driving the near-term and long-term growth?
I would caution investors against treating sectors as a substitute for stock selection. Even within a good sector, not every company will create wealth. The focus should ultimately remain on businesses with strong competitive advantages, healthy balance sheets and the ability to compound earnings.
Should investors diversify into gold or global equities, or does staying concentrated in Indian equities still offer the better wealth creation path?
India remains one of the most attractive long-term equity stories, given its relatively high economic growth, formalisation of the economy, rising financialisation of savings, infrastructure spending and large domestic consumption opportunity. So, Indian equities should remain the core of a long-term investor’s portfolio.
Having said that, diversification has an important role to play. Gold can provide a hedge during periods of geopolitical uncertainty, inflation or market stress, while global equities provide exposure to businesses and themes that may not be adequately represented in India.
I would, therefore, not look at it as an either-or choice. For a long-term investor, Indian equities can remain the primary wealth-creation engine, while around 5-10 per cent in precious metals and a measured allocation to global equities can improve portfolio diversification and resilience. The right allocation will ultimately depend on the investor’s age, risk appetite and financial goals. Investors should begin their journey towards global investing through mutual funds and later on gradually participate in the direct equities.
For an investor entering today, should the focus be on large caps, mid-caps, or small caps for long-term wealth creation?
I would advocate a diversified approach across market-cap segments, with a clear preference for quality and bottom-up stock selection. The market is likely to reward growth at reasonable valuations, rather than growth at any price.
Domestic SIP flows have emerged as a powerful counterbalance to volatile FII flows. How durable is this structural shift?
The rise in domestic flows is one of the most important structural changes in the Indian equity market. SIPs have created a more predictable and disciplined source of capital, and the increasing financialisation of household savings gives us confidence that domestic participation is here to stay.
Today, Indian investors are mature and persistent flow in MFs indicates that despite lacklustre returns during the last 2 years, investors are not reacting to the volatility in the markets and are here to stay for the long-term. However, we should not assume that these flows are completely insensitive to returns. There are a few mutual fund schemes which have managed to beat the benchmark and with smooth flow of information, there is a possibility of investors switching to better schemes.
I believe the long-term direction towards greater domestic participation in equities is durable. We believe that monthly SIP flows can double in the next 5-6 years, as the economy expands and savings shift from hard assets towards the financials.
If you had to give retail investors just one piece of advice for building wealth over the next 10 years, particularly when markets go through prolonged periods of weak or negative returns, what would it be?
The biggest change I would recommend is to stop trying to predict every market move and start focusing on the power of compounding.
A 10-year wealth-creation journey will inevitably include corrections, volatility and periods when the market appears expensive or unattractive. Investors who continuously change their strategy based on short-term headlines often end up buying after rallies, and selling during corrections.
Instead, investors should build a diversified portfolio, invest consistently, review it periodically and give quality businesses enough time to compound. The objective should not be to maximise returns every year; it should be to stay invested long enough for compounding to do the heavy lifting.
For someone building wealth over the next decade, discipline and patience are likely to be far more valuable than trying to get the timing of every market cycle right.