market: Mid & small-caps could face further pressure; large-caps show potential for gradual growth: Jitendra Gohil

“Overall Nifty earnings should stabilise going forward. So, we are of the opinion that Nifty 50 index if I look at the valuation is currently near to 10-year average level and hence I feel that we might see more consolidation at this level, but major downside is now over,” says Jitendra Gohil, Kotak Alternate Asset Managers.

At the start of 2025 who would have thought that for Indian markets it will be this vulnerable because if we see the emerging markets flows, India is one of the most hit market in terms of the FIIs outflows. But given the correction, given the relentless selling pressure, what is your reading into the markets right now and do you believe that most of the pain is now behind us and we are in for good times or there could be some more pressure in the near term?
Jitendra Gohil: Few things, first from a stock market correction perspective, so first of all we feel that look the largecap valuation has come to a level where there is less downside left. Overall Nifty earnings should stabilise going forward. So, we are of the opinion that Nifty 50 index if I look at the valuation is currently near to 10-year average level and hence I feel that we might see more consolidation at this level, but major downside is now over.

So, I feel that we should be looking at this level from accumulation perspective. So, from Nifty 50 earnings perspective, from valuation perspective, we feel that the bottom formation is in place.

Looking at a broader market perspective, I still feel that and our house view is also that the mid and smallcaps may see more pressure. Today, midcap index is currently trading somewhere around 27 times PE ratio which is much higher than around 18.5 where Nifty 50 index is trading. So, from broader market perspective, we see more pain ahead. However, from a macro perspective, we are a little bullish.

We think that most of the pain from a macro slowdown perspective is now over. India has also started to negotiate with the UK in terms of trade deal.

Probably, there will be some kind of trade deal happening between India and the US in the second half of the year. So, from a sentiment wise, we are still weak.

But going forward, government spending has started to improve. Our relation with the US is very critical in going ahead in the next couple of months or so.

But net-net, I feel that the tariff tensions that were cornering emerging markets and money was moving towards the developed market, I think that trade is a little far-stretched and going forward, I feel there could be some rotation happening towards the emerging markets away from the developed markets.

So, from that perspective also, I feel we are looking at somewhere some kind of bottom formation, at least in the largecap space. From a macro perspective, I will give you some data points where we are tracking. One is the government spending has started to improve.

Monsoon was good. So, we have started seeing that the inflation has started to cool off. Even RBI has started to cut rates. In fact, we expect one more rate cut possible in the April monetary policy and also, we have seen liquidity infusion from the RBI happening, so that is also a little bit supportive. So, from macro perspective, if we start to see some kind of surprise in the month ahead, then we might see money will start moving back to equities in a big way.

You mentioned how the largecaps have bottomed out now, given the relentless selling coming in from FIIs. In fact, it just does not stop. We saw 6000 crores worth of selling just coming in yesterday. So, if the largecaps have bottomed out or if you will, they are priced to perfection now, what are the pockets of value for you? What are the sectors where you are seeing value? How should one position oneself in the market now?
Jitendra Gohil: When we speak to international investors, the biggest concern for them investing even in largecap in India, that they do not find any large company which actually dominates globally.

So, if I look at China, there are a couple of companies which are actually very strong globally. In US there are several companies, in Europe also there are several companies.

But from India perspective, if I look at AI, data boom, we do not have major companies that actually going to dominate in the next 5 to 10 years in the global arena.

So, right now, FPIs are in the mood to look at these markets where these companies are investing heavily billions of dollars and try to create that kind of market opportunities.

But from Indian perspective, we are largely a domestic focused, consumption oriented economy, and hence the macro matters the most. So, as we see macro improvement, as I previously answered, I feel that sooner or later we will see some kind of reversal of trend might happen, but that will be very gradual.

So, within the largecap space, if you ask me, which are the sectors which are going to lead to the next level of growth, banks are undervalued and private sector banks, valuations have also come down to a level which becomes a little comfortable.

So, I feel from going forward, some of the financials are looking pretty decent. If I look at let us say 12 to 18 months view and where one should position is probably consumer discretionary. So, if I look at government has also started discussing Eighth Pay Commission and hopefully by next year we might see some implementation might happen.

And going forward, I feel the tax collection for the government is decent, we do not have any fiscal pressure going forward, the way we have been consolidating our fiscal deficit. In the next three to five years, we do not have such a massive headwind.

So, in my view, government should start focusing on consumption spending, which has been lagging so far. So, from that perspective, consumer discretionary companies, especially autos which starts to correct another 5-10%, I think from 12 to 18 months, the space is looking pretty good.

Other sector, I would say that travel, tourism, airline sector is looking pretty decent to me. I feel that look government has been a little behind in terms of providing consumption stimulus, but the high end of the consumption is being pretty robust and we feel that that trend is going to continue.

So, some of the hotel stocks which have corrected in this correction, also some of the airline companies or travel and tourism, those kind of companies we are looking at from a 12 to 18 months perspective, so that is it on the largecap and where we are looking at pockets of opportunities.

Also, talk to us about the whole discussion related to the pharma space on the implications of Trump tariffs, if at all they are getting implemented of that big a number, how do you read it into the pharma space because there is both side debates that are going on that if at all it gets implemented, it will impact the companies drastically because we just had Dr Reddy’s also flagging off a bit of a concern that that is the development that they are tracking. But on the flip side, some are also saying that given the size and given the contribution of Indian pharma companies in the US, it is unlikely that this harsh sanction could be imposed. What is your reading in the pharma space?
Jitendra Gohil: We are at the camp where we believe that pharma will not see major impact going forward. However, situation is extremely fluid. But if we discuss about, let us say, US tariffs, they have been pretty slow. So, the kind of narrative was earlier that look, on the day one, there will be a lot of tariffs on China, then this 25% tariff on Mexico and Canada, which will be implemented from 4th of March and let us see if they really go ahead with that.

So, it is not a one way traffic. If the US starts to put more tariffs on Indian pharma, then their economy will also see a lot of trouble. And healthcare already is very expensive in the US.

So, I see that it could be a negotiating tactic from the US and slowly and gradually we will see that market will start to evaluate case by case basis and in that bargain I think some of the CDMO space, contract manufacturing those stocks which have corrected in this kind of sell off, that becomes a buying opportunity.

So, from pharma perspective, we still remain overweight on pharma. We believe it is a structural story. And whether the tariffs will hurt this sector, time will say, but we are of the opinion that the US will not be very harsh on Indian pharmaceuticals.

And in fact, the US was talking about passing the Biosecure Act, where they want to increase or they want to diversify their imports. Right now, their imports are concentrated in China, which they want to diversify.

So, net-net, US needs us and we need US. So, I hope that there is some deal happens. And remember, even Piyush Goyal recently mentioned that India is trying some kind of a deal with US in the second half of the year. So, net-net, I feel that pharma should be a sector that one should look at on this correction.

The other sector that is looking attractive to a lot of analysts is the metal pack. They say that there has been a fair bit of consolidation. In fact, consolidation is over in metal. The prices have started picking up. Is it time for metals to shine?
Jitendra Gohil: See, within metals, we think that structurally we are a little bit bearish on metal space except for gold. We are extremely bullish on gold and we feel that one should have 5% to 7% of their holding in gold. Gold is a structural story.

So, buying gold if I look at the stock market perspective, the metal stocks, I feel that it could be a tactical play, but not a structural play. There are a couple of reasons. First is that China has been the driver for metal prices.

Real estate as a percentage of GDP was somewhere around 25% plus and now since the Chinese economy is going through this pain where real estate is struggling, I feel that metal demand is going to remain a little bit weak.

Going ahead, we are also looking at how Donald Trump is going to ease restrictions, the mining restrictions or environmental restrictions that these companies have. So, net-net, if the inflation goes higher in the US, there is incentive to have an offsetting impact via lower commodity prices. So, we have already seen higher drilling activity in the US.

US is trying to push non-OPEC members to produce more. In fact, US wants to export more of oil and gas to other markets and today they are producing, if I am not wrong, more than 30 million barrels of oil and also if US wants to create that negotiating power with Russia to end the war, oil prices should head lower.

So, going ahead, metals, oil, all these commodities will see some more correction. So, we are not at all extremely bullish on this space. There could be a dead cat bounce if China recovers. But net-net, I feel that one should stay away from metals pack as a whole.

That is a very interesting bookshelf right at your back. Given the turbulent times in the markets, if you wish to recommend any of the books for our viewers, because in the markets, everybody is just finding opportunities and seeing their portfolio go down day by day.
Jitendra Gohil: It is a very pertinent question. So, go for Prisoners of Geography, that is the book that I love the most. Right now what we need is to understand the geopolitical framework that we are going through and from that perspective what I am understanding from what is happening globally is that investment decisions are no longer based on PE ratios or interest rates or currency, it is mostly to do with geopolitical equations. And if one can get this geopolitical equation right, probably they can create a long-term portfolio. So, go for Prisoners of Geography, that is a lovely book to go.