Bajaj Finserv Mutual Fund CIO Nimesh Chandan notes that India's manufacturing export sector is currently mispriced by the market. With 75% of tracked companies exceeding earnings expectations, the firm suggests a strategy focusing on large-cap concentration while remaining cautious on expensive mid-cap valuations.
Nimesh Chandan, Chief Investment Officer at Bajaj Finserv Asset Management, has highlighted a significant gap between market perception and actual performance in India’s manufacturing export sector. According to the fund house’s internal analysis of 400 companies, 75% of firms are currently meeting or surpassing earnings estimates. This is a notable improvement in corporate profitability compared to performance metrics from six quarters ago.
Strategic Portfolio Approach
The fund house is advocating for a distinct approach to portfolio construction based on market capitalization. The strategy emphasizes a concentrated portfolio of 30 high-conviction large-cap stocks. In contrast, the approach for small-caps is broader, utilizing a basket of 95 companies to capture potential growth. This strategy reflects a cautious stance toward mid-cap stocks, which have driven much of the recent market rally, leading to valuations that may limit future compounding potential.
Where the Value Lies
According to the CIO, the market is currently overlooking several segments within the manufacturing revival. Areas such as data center infrastructure, robotics, and physical AI are showing signs of being undervalued. Conversely, investors should approach popular sectors like defense and power equipment with caution. While these sectors remain in high demand, their current valuations are stretched, making them vulnerable to corrections if market sentiment shifts suddenly.
Banking and IT Outlook
There is a notable shift in the outlook for private-sector banks. Previously viewed as an area to avoid, large private lenders now present an attractive entry point due to significant valuation compression. These banks are considered well-positioned to navigate potential interest rate adjustments, as their asset pricing typically resets faster than their liabilities.
Meanwhile, the information technology sector remains underweight in the portfolio. The firm indicates that a lack of near-term earnings catalysts makes it less attractive at present. Any change in this view would require a clear and visible pickup in growth rates across the sector for the current fiscal year, which has not yet occurred.
Navigating Market Volatility
While structural earnings growth provides a foundation for the market, geopolitical concerns and inflationary pressures continue to create volatility. The wealth effect from rising gold prices has helped maintain consumer demand, providing some cushion against inflation. For individual investors, the fund house suggests that the most effective way to navigate this environment is through systematic investment plans, or SIPs. This approach allows investors to average out the cost of entry and participate in long-term growth trends without needing to time the market perfectly.