While the market may not be at “rock-bottom” levels that warrant aggressive allocation, the excess froth seen in pockets such as manufacturing, defence and capital goods has largely receded, bringing the valuation premium over other emerging markets down significantly.
In an interaction with ETMarkets Smart Talk, Rahul Singh, CIO–Equities at Tata Asset Management, explains why India is now better positioned to attract its fair share of emerging market flows, how earnings growth is gradually reviving, why IT may no longer be a drag on profitability, and why investors should look beyond just gold and silver when playing the commodities theme.
He also shares his take on mid- and small-cap opportunities as valuation gaps narrow. Edited Excerpts –
Q) Thanks for taking the time out. It looks like there is some nervousness on D-Street post Budget then it got stabalized. How should investors decode?
A) Foreign Institutional Investors (FIIs) do not have only India to invest in. In mid-2024, India valuations were at an 80–90% premium to other emerging markets (EMs).After that, we saw earnings growth slowdown and other economies benefited either because of participating in the Artifical Intelligence (AI) theme or because China recovery post stimulus. So global capital followed there.Now growth is coming back in India and the valuation premium has come down to 50%. It’s still at a premium but much lower than 2024.We have reached a point where if emerging markets start getting flows — which is possible given the uncertainty in the US macro environment — India will get its share.
Now an FPI does not have to sell India to buy China. India will not get a disproportionate share of the EM flows but the selling intensity can decline.
We look much better than we did a year and a half ago. Valuations were expensive. Are we at absolute rock-bottom valuations where one should put 100% into equities? I would not say that.
But we are much better positioned than we were in July 2024. A lot of thematic froth in manufacturing, defense, capital goods has gone away.
Q) There are 2 precious metals which have not lost their sheen even in 2026 – Gold & Silver. We have seen some volatility – how should one play this theme?A) While gold and silver remain important, focusing only on these two commodities may be limiting. The world today is seeing geopolitical tensions and supply disruptions that impact a much wider set of commodities.
Commodity price movements are no longer restricted to gold, silver, or crude oil, but are extending into metals and other commodities as well. Investors should therefore look beyond just gold and silver and consider a broader range of commodities when approaching this theme.
Q) The December quarter earnings are underway – what is your take on the earnings which have so far?A) The growth has just started in different pockets and the earnings season has been either in line or better than expectations including in challenged sectors like IT services. We have not witnessed any downward earnings revision as a result so far.
GST cuts have been structurally positive but the demand revival will probably come by fiscal 2027 and not really this year. In the last quarter we saw the starting signs of GST cuts working in the insurance and auto sector.
Last year, Nifty 50 earnings per share growth was in the 3% range. This year, it is likely to be in the 7–8% range. And next year (FY2027) the expectations are around 15%.
Q) Hiring has taken back seat in the Indian Technology sector. What is your take on the service space amid rupee depreciation, rise of AI and global slowdown?A) IT downgrades have stopped, even though there are no strong upgrades. There will be no drag on corporate profitability for IT companies. That is a relief, though not a growth driver.
Q) How should one play the small & midcap theme?A) Mid and small cap valuation premium (vs. Nifty50) has come down materially since mid-2024. This is providing opportunities to re-enter mid/small cap segments selectively.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
