Tata MF CIO: Large-caps Poised for Comeback, Nifty Earnings to Surge 15%

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AuthorVihaan Mehta|Published at:
Tata MF CIO: Large-caps Poised for Comeback, Nifty Earnings to Surge 15%
Overview

Rahul Singh of Tata Mutual Fund forecasts a shift back to large-cap stocks as India's valuations normalize and Nifty earnings are projected to grow 15% next year. He cautions against lingering optimism in manufacturing and capital goods, highlighting a potential rotation into core categories like flexi-cap funds amid evolving global flows.

Large-Caps Eye Comeback Amid Nifty Earnings Growth

Rahul Singh, Chief Investment Officer - Equities at Tata Mutual Fund, believes large-cap stocks are regaining investor favor. India is reaching a point where increased foreign institutional investor (FII) flows into emerging markets could also benefit the country, without necessitating a sell-off of Indian assets to invest elsewhere, Singh stated.

Nifty Earnings Outlook Brightens

Singh anticipates Nifty earnings growth to reach approximately 15% next year. This upward revision is supported by a rebound in banking and financial services, alongside significant growth expected in energy, metals, and mining sectors tied to commodity prices. While Goods and Services Tax (GST) cuts have shown early signs of working in insurance and auto sectors, their broader impact on earnings might be more visible by fiscal 2027. Nifty 50 earnings per share growth is projected to rise from 7-8% this year to around 15% next year, a considerable increase from last year's 3% range. IT sector downgrades have ceased, providing a neutral, if not growth-driving, backdrop.

Valuation Reset and Market Dynamics

The market premium for Indian equities has narrowed to 50-60% from 80-90% against other emerging markets, a level closer to historical averages. This normalization, coupled with returning growth, could attract global capital. Singh noted that much of the thematic froth in sectors like manufacturing, defence, capital goods, and power has dissipated. However, he cautioned that some pockets within manufacturing and capital goods might still harbor unjustified optimism, suggesting a continued time correction in these areas based on actual delivery.

Navigating Market Uncertainty

Regarding global oil prices, Singh indicated that current demand-supply dynamics do not suggest a significant upward risk, despite geopolitical tensions. While crude acts as a portfolio hedge in India, its direct impact on corporate earnings is limited, though companies supplying the oil and gas industry, particularly EPC firms, could benefit from higher order flows. He also highlighted that generating alpha has become challenging due to investors' increasing short-term focus, recommending alpha assessment over three-to-five-year horizons.

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