Are current market valuations hiding opportunities or risks? Christy Mathai explains

Time of India

28-07-2025

Christy Mathai
, Fund Manager - Equity ,
Quantum AMC
, says they like buying underpriced companies, aiming to buy at a 25% discount to their intrinsic value. Currently, IT and banking sectors present opportunities due to earnings not reflecting their normalized potential. Relative valuation within sectors, particularly among second or third-tier players, offers prospects. Insurance and AMCs are also viewed favorably.
A lot of factors are impacting the market at present – be it the global or local factors, but a clear trigger to boost the market is still missing. The earnings are also not trying to help the market at present. What is your short, medium, and longer-term view on the market?
Christy Mathai:
When we look at the markets at the current juncture, we are in an easing cycle monetarily. The central bank is trying to revive the credit growth which is lagging from the past couple of quarters and also to stimulate growth in the economy. Broadly some of those can come through because we are sitting at a lower base versus last year but from a normalised perspective, it is nothing so great.
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Coming to the
tariff issue
, in the last few days, several deals have been done and it looks like the peak uncertainty with respect to tariffs is over even though the India part is not yet solved. So, at the current juncture, given where the valuations are, the market is looking at the earnings trend. If you were to look at some of the numbers that have come out, it seems to be a mixed bag. So, there is no certain acceleration in the company reported numbers.
Looking short-term, it is very difficult to say as it is all a function of flows, possibly if the FIIs come back in a big way, we will see some rally, but it is very difficult to call out. But from a medium and long-term perspective, given where valuations are, it will be driven by the earnings trends and in its absence, there is a general expectation of earnings inching up. If that were not to come through, we would be in a state of consolidation for some time.
What is your investment philosophy and what are the sectors currently on your radar? Your investment philosophy says that you buy stocks of companies that are at a minimum 25% discount from their intrinsic or fair value. Having said that, these opportunities come when the market, especially in the short term, is fixated and when there are disappointments. Looking at the current trajectory of the market, how are you placed in sectors or the companies that you are looking at, especially the
midcaps and smallcaps
?
Christy Mathai:
Our philosophy is typically trying to buy underpriced companies. If 100 is supposed to be the intrinsic value, we would want to buy it at least 25% cheaper; that is our philosophy. In a way, we run a value style here. From that framework, if you were to look at the current juncture, not a lot of sectors fit into that bucket because many of those sectors are trading at fair or above fair in terms of valuations.
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If we were to look at what should be a normalised earnings for a company two to three years out and, some of the sectors like IT, the current two-year, three-year earnings have been somewhere in the vicinity of mid-single digit. Do we think this is where the normalised earnings would be? We think not. We are more exposed to that sector. Same is the case with banking where the recent earnings print is not reflective of what their normalised earnings should be.
In this case, there is book value growth. We think those are the opportune sectors to get in. This is a market of relative valuation. In a great sector, the top player would be perfectly priced, but when you move down to the second player or third player, relative to the valuation that the market accords, there could be some opportunities. Hence we are present in some of those names. We think in sectors like insurance, AMCs, etc, those will be some of the great opportunities.
Now from a relative market cap segmentation, an investor should have exposure across the breadth. It is how you want and what percentage you want in terms of an exposure. In smallcaps and midcaps, you have to be extremely selective and that is what we are trying to do in some of our funds. We are not exposed much to the euphoric part of the markets –be it capital goods, defence, and so on and so forth, but we are trying to minimise the risk from that perspective.
At any point in time, you should have that perfect asset allocation to help you navigate these markets.
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Recently
India-UK FTA
has been signed. and I want to understand from you, will you be redrawing your strategies in the aftermath of this deal and more importantly you mentioned about the India-US trade deal as well which looks like round the corner, how do you view it?
Christy Mathai:
We just talked about the India-UK tariff deal, and so we just look from a market perspective. Some of the sectors get impacted, not really much, though it would be great from an economic standpoint that now some of the barriers are out of the way, but not much from a market perspective.
If you were to look at the US tariffs now, our exports to the US is minuscule compared to the overall import basket. So, from that perspective, the few sectors which everybody knows and talks about are gems and jewelleries, pharma is a large sector from our vantage point, but we do not think there could be a major impact as there is always room for error because this is all policymaking.
But given the generic nature, you are in a way trying to reduce the cost to the end consumer in the US. So, how much punitive action do you want to put in that sector? Some of the middlemen who are profiting quite a bit, would be exposed to some of these tariffs if there is more pricing action on that front. This is one sector that could be on the radar given the deal front and the whole IT services is indirectly impacted by this sector because the Fortune 500 companies of the world would possibly not be spending so much on it when the expectations are not very clear, where to invest, how to invest.
Some of the issues with respect to how supply chains would be revamped and how it would impact the Fortune 500 companies and thereby their spending – that uncertainty would decrease. In a way, IT services are currently impacted, but incrementally we expect positivity when this dust settles.
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