Expert view: Pawan Bharaddia, the co-founder and CIO of Equitree Capital, appears positive about the Indian stock market. In an interview with Mint, Bharaddia shared his views on Indian stock market triggers and the impact of a potential US-India trade deal and the buzz in the IPO segment. Here are edited excerpts of the interview:
Nifty has clocked decent gains in the first half of the current year. Can the second half be better?
Despite several headwinds, Nifty delivered a nearly 8 per cent return during the first half of the current year. At the current level, it is trading at a one-year forward PE of 20.1 times, which is in line with its five-year and 10-year historical averages.
While this seems to be a great set-up going into the second half, challenges remain from higher valuation in the mid-cap space and ever-changing geopolitical scenarios.
We will need to see how this plays out. We are more focused on long-term wealth creation through bottom-up stock picking, and from that perspective, we remain enthused by the business visibility that we see ahead.
Which domestic triggers could drive the next market rally?
We believe the next market rally in India will be primarily driven by corporate earnings. It is interesting to note that in Q4FY25, the Nifty 500 (excluding Nifty 50) reported a strong nearly 17 per cent growth rate.
We saw similar things in our portfolio as well, where a large part of our portfolio companies reported more than 20 per cent growth. If this growth momentum continues and becomes broader-based, then this may become a big trigger for markets.
On the other hand, we are also seeing some early green shoots on the consumption side. A much sought-after revival in consumption may also add to the market rally.
Are there any India-specific risks that could stall small-cap momentum?
Despite macroeconomic indicators being conducive to growth, including a stable government, controlled fiscal deficit, GDP growth projection of around 6.5 per cent, and strong foreign exchange reserves, poor execution by the promoters remains the biggest challenge that could derail the momentum in small-cap stocks.
Business opportunities remain strong, and if the promoters can execute them in the right manner, they could boost the momentum in the small caps.
Do you think a US-India trade deal tilted in the US’s favour could upset domestic market sentiment?
Going by recent trends in trade deals, we expect the US-India trade deal to be a win-win for both economies. Nevertheless, certain sectors may get some preferential treatment on both sides.
One will need to be watchful for these specifics and assess the impact accordingly. For example, recent media reports suggest that the two countries are in negotiations about the import of GM crops.
If an agreement is reached on this matter, it could affect India’s agricultural sector.
Domestic farmers and related industries could be adversely impacted, and increased competition for domestic producers in this segment could upset the domestic market sentiment.
We see fresh momentum in the IPO market? Is it just a hype cycle, or does it indicate a substantial improvement in underlying sentiment?
Retail investors have been actively participating in the market and have played a significant role in sustaining market liquidity.
The recent momentum in the IPO market clearly reflects this cultural shift in investor mindset, with retail participants increasingly viewing equities as a long-term wealth creation avenue.
Today, you see the Indian investor is far more mature and informed than it was in the past and has demonstrated the ability to navigate through market volatility.
Where do you see the smart money moving?
After the incessant infusion of liquidity into the mid-caps, smart money seems to be moving partly to the large caps and partly to the unlisted, micro-cap (market cap of ₹500-5,000 crore) segment as valuation tilts in favour of these segments from the mid-caps.
As an investment house completely focused on the micro-cap segment, we have seen an increased inflow over the last couple of months.
Seasoned investors are willing to bet on high-quality companies in this genre from a long-term wealth creation perspective.
As a testimonial, it may be interesting to share here that our AUM has grown by over 16 per cent in the past two months!
The US Fed revised its growth and inflation estimates. What does this mean for Indian investors?
The Indian market has shown strong resilience to the developments in global economies, including the US.
It is interesting that despite an FII outflow of ₹1.09 lakh crore, the Nifty has still managed to deliver nearly 6 per cent growth.
Strong and consistent participation from domestic institutional investors (DIIs) and retail investors has made the market increasingly self-sustaining.
While the US Federal Reserve’s policy moves may trigger short-term sentiment-driven volatility in India, their impact may be temporary, and it eventually evens out.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
