In an exclusive interaction with ET Now, Pankaj Murarka, CIO, Renaissance Investment Managers shared his outlook on market direction, sectoral leadership, and investment strategies in the current environment.
Markets Look Beyond Short-Term ShocksMurarka remains optimistic about the trajectory of the markets, even after recent macroeconomic disruptions.
“It is certainly headed higher. I mean, it is as simple as this. Markets have absorbed the macroeconomic shock. While from an earnings perspective, we will see an impact of rising oil prices, currency adjustments, and rising bond yields, what we witnessed in March with rising oil prices was a perfect macroeconomic shock for India. While all of this will have an impact on earnings, probably in the first quarter and the first half as well, markets will look beyond that.
I think the earnings recovery we were looking forward to in FY27 or in this financial year will probably get pushed back to the second half of the year, but markets are already looking ahead to that. Markets have priced in that shock in terms of earnings adjustments. Having said that, the underlying growth in India remains fairly resilient. So, if you ask me, we are poised for a new high on the index by the end of this year.”
Financials to Lead, Energy and Consumption to FollowWhen asked about sectoral leadership, Murarka pointed to a broad-based recovery rather than a single-sector rally.“Look, I see a broad-based recovery in the economy, so obviously financials will lead underlying growth. We have seen an improvement in credit growth. Last year, credit growth was up at 14%. With inflation coming in, working capital demand will increase, which will support credit growth. On top of that, the investment cycle continues to remain dynamic.We are already seeing demand from some very large investment projects on the credit side for banks. So, banks will certainly do well. But apart from that, new sectors will open up. The spike in energy prices has exposed India’s energy vulnerability, so we will likely see higher investments in the energy ecosystem, which should do well.
We are also seeing recovery in consumption, as you highlighted. Nestlé reported strong results recently. We are coming out of two years of a sluggish cycle in consumption. There is latent demand in the economy. Historically, when domestic demand sectors go through a slowdown, they see a strong revival because that latent demand always exists.
We see something similar in autos as well, where after several years, sales have crossed previous peaks. This means there is significant pent-up demand now playing out. The underlying demand remains robust and will reflect across domestic-oriented sectors.”
IT Sector: Short-Term Pain, Long-Term OpportunityThe IT sector has underperformed in recent months, but Murarka believes the outlook remains positive over the long term.
“We have all seen that the sector has not done well in the last 12 months. Valuations are at cyclical lows, levels we last saw around 2018. One key concern has been whether these companies will shrink over the next 5–10 years. I think that concern has now been addressed—this is not going to be the case.
These companies are going through a transition. Some parts of their business are being repriced or cannibalized, but at the same time, new opportunities are opening up. My belief is that these companies will continue to be growth companies in the near, medium, and long term.
Over the next four to six quarters, growth may remain moderate due to this transition. However, once this phase passes, they will return to a high-growth trajectory. Historically, major technology transitions have led to stronger growth for IT services companies, and I see no reason why this time should be different.
From a market perspective, valuations are low and pricing in muted growth. But growth will improve over the next four quarters. For long-term investors, this is a good time to invest with a three- to five-year view, with potential for strong returns.”
India’s Position in the AI LandscapeOn artificial intelligence, Murarka noted that India may have missed the initial wave but still holds opportunity in services.
“The challenge with foundational technologies like AI is that the first five years are dominated by companies building the core ecosystem—like OpenAI, Anthropic, semiconductor firms, and hyperscalers. India does not have a presence in these areas.
However, as AI adoption spreads, India will play a role through IT services. Companies will need help integrating AI into their operations, and this is where Indian firms can add value.
The limitation is the lack of risk capital needed to build foundational technologies. These require significant investment with low success rates, and India’s ecosystem does not yet support that level of risk.”
Stock Selection Key in Mid and Small CapsMurarka emphasized that the investment approach must now shift from sectors to individual stock picking.
“At the aggregate level, markets are fairly priced. But in times of macro uncertainty, performance dispersion within sectors increases significantly. You will find companies in the same sector performing very differently.
The game now is stock selection, not sector selection. It comes down to competitive edge, business moat, and management execution. Strong management teams can deliver growth even in challenging environments.
There are still opportunities in mid and small caps, especially after the recent correction. But investors need to be selective. Stocks that deliver positive surprises are seeing strong market reactions.”
Preferred Picks: Focus on FinancialsWhile cautious about giving outright recommendations, Murarka shared a glimpse of his portfolio preferences.
“We like several mid-cap financials with strong management execution. We own names like Federal Bank and City Union Bank. In the NBFC space, we hold M&M Finance and PNB Housing Finance.
At this stage, it is all about management quality and execution. Companies that execute well will deliver superior returns. The market is increasingly stock-specific.”
The Bottom LineDespite global uncertainties and short-term earnings pressure, the broader narrative for Indian equities remains intact. With resilient domestic demand, improving credit growth, and structural opportunities in sectors like energy and technology, markets could be on track for new highs—provided investors stay selective and focused on fundamentals.
