India in a mature bull market, still poised for positive returns: Pankaj Murarka

Economic Times

23-05-2025

ETMarkets.com
While our exposure is currently limited, we believe some of these platforms could emerge as the next generation of large-scale consumer companies.
"Over the past five years, many of the low-hanging fruits have already been harvested. Significant money has been made, and valuations are now expensive. In fact, India is currently the most expensive market globally," says Pankaj Murarka, CIO, Renaissance Investment.
Firstly, help us understand your outlook. What are you really pencilling in for the markets? Lately, a lot has been happening globally—we're in the midst of tariff uncertainty and its potential implications on businesses. However, back home, some macro indicators seem to be faring well. What's your sense of the Indian markets, and where do you see us heading from here?
Pankaj Murarka: I've consistently maintained that we are in a bull market. My simple definition of a bull market, drawn from the original Dow Theory, is that markets deliver positive returns on a full-year basis. I still firmly believe markets will yield positive returns on an annualised basis. That said, I've also been highlighting that this is a mature bull market—we're now in the sixth year since it began, right around the onset of the COVID-driven lockdowns. Over the past five years, many of the low-hanging fruits have already been harvested. Significant money has been made, and valuations are now expensive. In fact, India is currently the most expensive market globally.
We must also acknowledge that we're experiencing a cyclical slowdown—partly due to domestic factors and partly due to global trade headwinds. Yet, India is arguably the best-placed market in the world today. I still believe earnings growth will recover starting this year, with Nifty potentially delivering low double-digit earnings growth, and markets generating similar returns. So yes, our view on markets remains constructive. However, investors will need to be selective—picking the right sectors and stocks is crucial. At the index level, returns are likely to be in the high single digits to low double digits, which is still quite healthy for a mature bull market at this stage of the cycle.
What are you doing with your internet stocks?
Pankaj Murarka: To be honest, we've booked some profits. What began as a highly contrarian, fear-driven trade has now turned euphoric. Valuations in some of the companies we liked are now pricing in growth too far into the future. The key with internet stocks is the ability to identify strategic winners over the next 5–10 years. In my view, the top two or three players in any segment will generate 130–140% of the industry's profits—implying the rest will lose money. So, picking the right winner, and at the right valuation, is critical.
For example, take Zomato in the food delivery space. At ₹50, we saw significant profit potential and felt the stock was mispriced. Today, it appears to be pricing in too much future growth. While Zomato remains a category leader and should do well over the medium term, I don't expect much near-term upside in its stock price over the next 12–18 months. Since we manage clients' money, our investment horizon is 2–3 years. Strategically, I remain very positive on the internet space, but yes, we have partially exited some positions.
Assuming that earnings growth will be good—but not extraordinary—and that finding companies growing even at 15% might be tough, how would you build a portfolio for the next three years? Specifically, one comprising companies with 15–20% top-line and 15–25% bottom-line growth, but whose valuations aren't overly stretched.
Pankaj Murarka: Absolutely. You've hit the nail on the head. While aggregate earnings growth is likely to remain in the low double digits, there are pockets across sectors where growth is stronger. The key is to find reasonably valued companies within those areas. Take EMS (electronics manufacturing services) companies—they're growing fast, but are already priced to perfection. Instead, I prefer slightly lower growth—mid to high teens—if valuations are more reasonable. What matters to investors is actual returns, and you can achieve strong returns even with moderate earnings growth if you enter at the right price.Ultimately, it comes down to business models and management execution. Companies with strong execution at a strategic level can deliver outlier growth despite headwinds. To answer your question, there are three broad buckets we like:First, large banks. We own the top four private sector banks in India. These stocks are trading at a discount to the Nifty and offer reasonable valuations. They are capable of delivering mid- to high-teens CAGR returns over the next three years. So, this remains a core portfolio segment.Second, consumer and consumer-oriented stocks. Over the last six months, we've pivoted towards this space. These stocks underperformed over the past five years, but valuations are now back in line with long-term averages. With a likely revival in consumption, we're focusing on companies driving both organic and inorganic growth—those with strategies to outperform industry averages.Third, internet companies. Despite some profit-taking, we still hold names in this space. Select internet companies can grow 25–30% CAGR over the next 5–7 years and are reasonably valued. So, they remain part of our portfolio. In summary, these three buckets should help generate high-teens portfolio-level returns—an excellent outcome in a market cycle like this, with moderate risk.
Now that you've sketched the broader picture, let's fill in the details. Within those three buckets, what are your top holdings or ideas?
Pankaj Murarka: Starting with large banks, we own HDFC Bank—we've re-entered after a gap of three years. Post-merger, the bank had a period of consolidation and was underperforming industry growth. Now, we expect it to regain industry-leading growth within the next four quarters. We also own Kotak Mahindra Bank, and ICICI Bank remains a core holding given its strong execution. In the consumer segment, we have exposure across staples and discretionary. Among staples, we own Tata Consumer and Godrej Consumer. These companies are expanding into new categories and making strong organic and inorganic investments to drive growth. For context, India's private final consumption expenditure (PFCE) is $2.6 trillion, higher than the GDP of the 10th largest economy, and growing at 10–12% annually. Companies with strong strategies and execution can capture a larger share of this growth.In consumer discretionary, we own Jubilant FoodWorks. We believe pizza, as an organised category in India, remains underpenetrated with a long runway for growth. We also hold names in consumer durables, where penetration is still low. Companies that can execute well on the ground have the potential to deliver strong mid- to high-teens growth.
In the internet space, we continue to hold Paytm and Info Edge. We have a smaller holding in Zomato, having booked some profits. We are also evaluating new-age internet and consumer tech companies like Nykaa and FirstCry. While our exposure is currently limited, we believe some of these platforms could emerge as the next generation of large-scale consumer companies.