Earnings, not just flows, are driving India’s equity lag
During the “Inevitable India, Uncertain World” session at Moneycontrol’s Mutual Fund Summit in Delhi, Anish Tawakley, Chief Investment Officer of DSP Mutual Fund, highlighted that the recent under‑performance of Indian equities cannot be blamed solely on foreign investor selling. He pointed out that large‑cap earnings growth has been muted for the last two years, a factor that has kept the market below expectations.
Tawakley stressed that investors should not rely on short‑term market movements. "Equity investors should take at least a three‑year view," he said, noting that the earnings outlook remains healthy over a three‑year horizon and that GDP growth is expected to stay robust during the same period. He added that the real determinant of future performance will be how effectively India builds cities and houses.
Beyond the Nifty 50
Sachee Trivedi, Founder and CIO of Trident Capital Investments, and Deepak Shenoy, CEO of Capitalmind Mutual Fund, echoed Tawakley’s sentiment. Trivedi warned that the Nifty 50 benchmark may not capture the full breadth of opportunities in the Indian market. "Businesses are changing, models are changing; if not Nifty 50, it will be Nifty Next 50," she said, urging investors not to lose faith in the market’s resilience.
Shenoy added that the headline performance of the Nifty does not reveal where future growth may emerge. "Small caps may become large caps," he noted, and cautioned against focusing solely on a flat Nifty. He suggested that the next wave of growth could come from a shift toward capital expenditure and manufacturing, replacing the earlier emphasis on AI and consumer growth with job creation and broader economic expansion.
What this means for investors
The consensus among the three analysts is clear: a longer‑term perspective is essential. By looking beyond the Nifty 50 and considering the evolving business models in the Nifty Next 50 and other sectors, investors can uncover hidden opportunities that are not reflected in the benchmark’s performance.
The emphasis on earnings and GDP growth signals that the market’s fundamentals remain solid, even if short‑term volatility persists. Investors who adopt a three‑year view and focus on businesses that stand to benefit from increased infrastructure spending and manufacturing activity may be better positioned to capture the next phase of growth.
Takeaway
- Large‑cap earnings growth has been a key driver of India’s equity under‑performance. - A three‑year investment horizon is recommended to align with the healthy earnings outlook. - The Nifty 50 may not fully represent the market’s potential; broader indices and small‑cap segments warrant closer scrutiny. - Future growth could pivot toward capital expenditure and manufacturing, offering new avenues for investors.
By shifting focus from short‑term market swings to long‑term earnings fundamentals and broader market segments, investors can navigate the current uncertainty and position themselves for the next growth cycle.