The veteran analyst contends that India’s benchmark index has undergone a structural transformation that renders historic comparisons out of date. Corporations like Reliance, which traditionally traded at 15-16x multiples, can now not be evaluated via the identical lens attributable to their developed enterprise fashions. Equally, high-growth retail gamers like Trent commanding 67x ahead multiples mirror a brand new breed of corporations with totally different progress trajectories and market dynamics.
“The composition of Nifty itself has modified,” Pandey emphasizes, suggesting that whereas present valuations might seem wealthy, they don’t seem to be essentially overvalued when seen via the prism of as we speak’s enterprise realities somewhat than yesterday’s benchmarks.RetryClaude could make errors. Please double-check responses.Edited excerpts from a chat:
Do you assume the smallcap rally is in sync with the This fall outcomes? How a lot of it’s led by liquidity of retail and mutual funds?
Pankaj Pandey: The problem is that we are inclined to generalise midcap and smallcap rather a lot as a result of solely prime 100 shares are largecaps, subsequent 150 are midcaps, after which your entire lot is smallcaps. So, it is a reasonably large universe. There are some pockets the place you’re seeing valuation being extraordinarily wealthy. There are some pockets the place issues are roughly sober. It’s a inventory picker’s market.However usually, many of the home macros are largely intact, in actual fact, getting higher solely, which is a constructive tailwind for smallcaps to do properly. Thus, we don’t see any problem with smallcaps not performing properly. They get crushed down extra when your macros flip worse and domestically, our macros are getting higher solely. So, from that perspective we don’t see a problem with midcap or smallcap as a class proper from progress to valuation to even liquidity additionally.
Do you assume that smallcap froth that we noticed final yr is settled now?
Pankaj Pandey: The best way we take a look at corrections is that yearly Nifty will generally tend to appropriate at the very least 10 to fifteen p.c. And it may occur a number of occasions. Midcap and smallcaps, being riskier, the extent of correction may very well be 20-30 p.c or extra in particular person shares. So, what occurred final yr and even this yr isn’t out of the blue. It’s simply that each time they appropriate and folks begin placing an image that these are untouchables. You’ve got quite a lot of smallcaps the place the stability sheet is kind of wholesome and also you would not have points with debt.
Take a look at hospitals, for instance. You’ve got two hospitals which have a market cap of Rs 1 lakh crore – Max and Apollo. You even have the likes of HCG, Narayana Hrudayalaya. We like most of them.
Do you assume This fall was the final of downgrades so far as earnings are involved? Are we on the backside of the downgrade cycle?
Pankaj Pandey: That’s what we’d wish to imagine. FY25 was an election yr. The whole commodity pack acquired impacted with cement and metal costs getting hit. GRMs have been tender.
Now quarter-on-quarter quantity progress is selecting up in cement. The EBITDA per tonne for many cement corporations has been fairly good. Tata Metal is on the lookout for a Rs 3,000 sort of a value hike. In case you are making Rs 12000 EBITDA per tonne, Rs 3000 is a big quantity as your entire profit flows on the bottomline. Equally, for the GRMs, whereas it’s secure, the crude has come down, so we’d wish to follow the advertising and marketing aspect, as they may do properly except the federal government intervenes.
What’s the sort of expectations that you’re baking in from the Q1 incomes season?
Pankaj Pandey: In FY26 we predict ~11% sort of progress. Nifty is now buying and selling about 20 occasions FY27 PE. One of many considerations that get highlighted is that the valuations are wealthy. However you must break it down into company-wise.
Let’s take a look at RIL, which has the best weightage within the index. You can not count on Reliance which used to traditionally commerce at 15-16 a number of to commerce at comparable multiples as a result of the enterprise mannequin has undergone a change.
Equally, within the retail area, Trent has been doing exceptionally properly in comparison with the remainder of the pack. That is one firm which has been rising at 35-40% and buying and selling at 67 occasions on a ahead foundation. So, it’s commanding two-time PEG. The composition of Nifty itself has modified. We can’t be wanting on the historic perspective and saying that the market multiples are past worth. It’s wealthy, however not overvalued, I’d say.
Nikhil Agarwal: So far as portfolio building is anxious, what’s your view on holding money?
Pankaj Pandey: Usually, we don’t counsel holding a excessive proportion of money as a result of now we have seen traditionally it’s a very troublesome name to take. Thus, we don’t counsel clients to take a seat on money huge time. For instance, if you don’t just like the market, then you definitely take shares that are pseudo money. So, for instance, when the market is dangerous, then you definitely search for largecaps, you search for FMCG, otherwise you take a look at the classes which can get much less impacted. So, these are your FD sort of positions as a result of you may get 7% or excessive single-digit returns there. However as soon as the market modifications gear, then you may probably transfer to some riskier classes. For holding money, you want luck to get costs at decrease ranges and most significantly, braveness to deploy money throughout such occasions.
Whosoever has been ready on the sidelines, most likely has missed one leg of the rally.
Nikhil Agarwal: Which sectors are you bullish on?
Pankaj Pandey: We just like the BFSI area. Inside which, we like AMCs like Nippon and HDFC AMC. We additionally like banks, the place you may’t complain that valuations are wealthy. Banks may be one thing which may hold doing properly, to not say that they would be the prime performers, however they need to be in your portfolio as a result of many of the banks are wanting good.
The opposite issue is that the majority of the FII promoting is behind us. In banks, they’re now not destructive. Within the first half of the yr, we might even see strain on the margin aspect however within the second half, deposits can even get repriced.
