Expert view on Indian stock market: Market valuations stretched, but outlook remains bright, says Mayur Patel of 360 ONE

Mint

6 hours ago

Expert view on Indian stock market: Mayur Patel, President and Fund Manager- Listed Equity, 360 ONE Asset, is positive about the Indian stock market for the long term, even as he points out that the current valuation is stretched. In an interview with Mint, Patel underscored that while near-term corrections can't be ruled out, India's fundamental story remains strong and is an 'add-on dips' story. Here are edited excerpts of the interview:
While Q1 earnings remain weak, the outlook is actually encouraging. Consumer demand is poised to rebound after a prolonged slowdown.
Tax reliefs, interest rate cuts, and enhanced liquidity amid cooling inflation should help revive consumption.
Credit growth, currently subdued, is also expected to pick up with a lag. So, earnings trends are not the primary concern.
The bigger overhang is uncertainty around US tariffs. The announcements so far are aggressive — 20–35 per cent tariffs on a range of countries are clearly negative for global trade.
This raises risks of higher inflation and an economic slowdown in the US. It could also disrupt global trade, delay corporate investment decisions, and increase equity risk premiums.
For India, the direct long-term impact of US tariffs is limited — merchandise exports to the US are just 2 per cent of Indian GDP, with services adding another few percentage points.
However, in the short term, higher tariffs on Indian exports (if finalised) could dampen market sentiment.
Interestingly, India might actually benefit over the longer term from the 'China+1' strategy, especially if Indian tariffs remain lower than those on other competing economies.
We don't try to predict short-term market movements. That said, we are a bit cautious in the near term.
Valuations are above average, and there's a lot of global uncertainty in the mix, whether it's US tariffs or geopolitical tensions.
Trying to call near-term market movements is rarely productive. Markets are complex, and short-term movements often have more noise than signal.
That said, there's no denying valuations are stretched. The Sensex P/B, which had corrected from 4.25 times in September'24 to 3.76 times in Q1, is back at 4.5 times — well above the long-term mean of 3.2 times.
So yes, some volatility or even a correction is certainly possible, especially with risks like US trade policy or oil price shocks from the Middle East.
But if we step back, India's domestic macro picture is solid. Growth is improving, inflation is coming down, the RBI has front-loaded rate cuts and even announced CRR cuts — all pro-growth signals.
Discretionary consumption is also set to revive with the ₹ 1 trillion tax relief and upcoming Pay Commission hikes.
So while near-term corrections can't be ruled out, India's fundamental story is strong.
Think of it like a high-quality, high-growth stock that looks pricey today but offers long-term value — it's really an 'add-on-dips' story.
We're clearly in a market where bottom-up stock selection matters far more than top-down positioning.
Market internals would matter more than market timing.
Key portfolio construction thoughts:
(i) Growth leadership is shifting from government-led capex to consumer discretionary spending.
(ii) After a strong run, value as a factor may underperform, with quality and growth factors likely to come back in favour, helped by urban consumption stimulus and a supportive rate/liquidity backdrop.
(iii) Export-driven sectors are vulnerable to earnings downgrades amid global uncertainties.
(iv) Prefer domestic demand-driven stories over those heavily reliant on global macros.
Over the last five years, government capex grew from ₹ 3.4 trillion to ₹ 11 trillion — an impressive 27 per cent CAGR, which really helped capex-linked sectors and value stocks.
Looking ahead, we're seeing the government's focus shift toward reviving consumption and encouraging private capex while controlling the fiscal deficit, with government capex growth likely to moderate.
This sets the stage for a potential comeback in the growth and quality segments of the market.
Coming to specific areas of preference with a slightly longer-term view, we do see robust growth prospects in the following sectors:
(i) Manufacturing: Renewables, electronics, semiconductors, etc.
(ii) Consumer discretionary: Benefiting from fiscal incentives and potential pay commission-related hikes.
(iii) Power sector: Opportunities, especially in transmission and distribution.
(iv) Auto EV plays: Positioned for sustained growth driven by rising penetration of EVs.
(v) Quick commerce: Emerging space with significant growth potential.
(vi) Pharma CDMO: Leveraging India's global competitive advantage.
(vii) Telecom: Sector attractiveness enhanced by industry consolidation.
(viii) High-quality NBFCs: Consistent growth leaders.
(ix) Private banks: Offering attractive valuations and stable growth.
At current valuation levels, it's important to keep short-term return expectations modest, and instead focus on systematic, long-term investing.
Historically, as investors stretch their horizon from one year to five years, volatility in returns — as measured by standard deviation—reduces significantly, and the risk-reward ratio improves.
If we look past short-term volatility, we feel good about H2. Consumption should recover, credit growth is likely to pick up, and lower rates will support overall growth.
Also, with market ROEs of around 15%, each passing year naturally compresses P/B multiples, improving the long-term risk-reward balance.
In short, the cyclical rebound in discretionary consumption and the steady rise of manufacturing are India's two big growth drivers in the coming years.
So, have some appetite for short-term volatility and invest systematically in this structural growth story.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, 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.