Is the worst over? Mihir Vora on the market’s next big moves

“Some of the self-inflicted fundamental factors like RBI keeping liquidity tight, government going slow on spending in the first half, those are now getting unwound,” says Mihir Vora, CIO, Trust Mutual Fund.

Where markets are headed.
Mihir Vora: We had this good correction for five months and we had a smart bounce back. The correction had some reasons and maybe to some extent it was overdone so that overdone part is probably done. So, we have had the reset, I would say. I call it the reset in the market.

Some of the self-inflicted fundamental factors like RBI keeping liquidity tight, government going slow on spending in the first half, those are now getting unwound.

So, we have a good base of valuations and growth outlook to work from. And as we speak, apart from the uncertainties that you were discussing regarding the President Trump’s actions, etc, for India the base is reset and we should be now looking at more normal kind of markets, barring unforeseen events in the global situation.

So, markets are oversold, they have come back. Valuations were expensive, they have corrected. But earnings are not going to come back. So, what happens to the market? I mean, earnings will take some time before they normalise, maybe two quarters and markets have already come back. So, then are we in for a pause phase for two or three quarters?
Mihir Vora: No, you might be surprised because if you notice, government spending has really gone down in the June 24 and September 24 quarters and that was a big drag on the overall economy as well as different corporate results, etc. So, we actually have a low base to start from in the June and September quarter.

So, on a year-on-year basis, things would not look too bad actually. So, I would be surprised if we do not see some upgrades in some of the stocks, especially in the cyclicals, because expectations are running too low at this point in time.
So, I would say that for the full year, of course, we are expecting the largecap indices to have earnings growth of about 9-10%. The smallcap and midcap indices probably 15-17%. So, those earnings in the coming year, FY26, are expected but you actually might have a surprise in the first two quarters.
And let us actually shift focus now to sectors, given the fact that now everyone is trying to actually spot that opportunity in the market. Everyone is saying that banks is an outlier. It is out there, actually, for you to go ahead and pick this one given the fact that with the correction, the valuations have become reasonable. But are you of that same camp that banks are looking attractive? And apart from banks, which one are you liking?
Mihir Vora: Certainly, the large banks and large NBFCs cannot be ignored in this market. A) valuations have corrected and they have corrected not only in the last five months, if you remember, banks and NBFCs, the large banks and NBFCs had underperformed actually almost for one-and-a-half, two years and that was with good reason, credit growth was coming down, liquidity was tight.

RBI was telling some of the large NBFCs to take it easy on the unsecured loans and also, there are structural and fundamental reasons for the slowdown and we did see a good significant de-rating of the large banks and large NBFCs.
All these factors are now getting adjusted upwards. First, you have a low base to start from. RBI is getting dovish, liquidity is being provided, the interest rates are being cut, government spending which was a drag is now coming back.

So, all those factors will continue to help the economy and if we assume that we meet our 6.5% GDP growth target for this year and next, which is FY26 and FY27, then credit in the system has to grow.

We are running at almost only 10% to 11% credit growth for a country growing at 6.5%, that is not possible because for the industry to really grow, you need at least 1.2, 1.4 times credit growth to GDP and we are talking about nominal.
So, credit growth has to come back to 13-14% in the next few months and we have a good base to start from. So, financials, both from the terms of growth as well as in terms of valuations are looking quite attractive I would say.

So, then it comes back to some themes where you think that we are in for an earning surprise. Last year, the theme was largely where we got a lot of earning surprise was PSUs, defence, railways. Which are the themes for FY26 where we are in for an earning surprise, where markets are expecting 10%, we may get 12, where markets are expecting 12, we may get 15?
Mihir Vora: So, actually, the cyclical which you talked about, the construction, capital goods, defence, railways, etc, started off with a lot of expectations last year and then as the ordering, etc, got delayed, we saw downgrades.

And now we are at levels where people are not expecting much, but in the last few months, a couple of months, we have seen that ordering has come back.

So, in these cyclicals, again, we should start seeing upticks. You might see some upticks in some of the discretionary names, FMCG names if you really see inflation coming down and metal prices coming off.

We have had situations where in the last couple of months, steel prices have gone up, so there is some expectation building about margin pressure, but if that does not come through, then you again might see some of the discretionary names also getting better in terms of margin.

The other place I would look for, probably in the second half of FY26, is financials. As liquidity starts easing and if the RBI decides to keep liquidity even more easy than what it is now, then you might see further upgrades in the financial sector.

There is a lot of this entire consumer demand vector at play now because from 1st of April we will have that tax saving kicking in, government announced in the last budget, but the tax saving in hand of taxpayers will only start kicking in from April onwards when we will get April salary, we will say kam tax laga hai. How will that affect markets? How will that affect stocks?
Mihir Vora: The direct impact of the tax cuts may not be very visible immediately because as we have discussed in the past, part of it will actually go to savings and deleveraging.

Also, there is this middle class leverage that has happened, so part of the money might go for deleveraging. Of course, part will go for consumption. So, I do not see immediate visible kicker, though it is a net-net positive, but it would not be that sharp for us to really pinpoint that this was exactly due to tax cuts.

Coming to the sectors, I wanted to get your view, especially on the auto space. Today, you have the auto sector that is in focus on back of what Trump has announced. But keeping that the news piece aside, how are you gauging the entire auto space and when you talk about auto space, also I want to get your view on auto ancillaries.
Mihir Vora: So, in general, we are not that positive on auto because commercial vehicles, there is not much volume traction.

Passenger vehicles, again, there is not much volume traction but there is a couple of names in our portfolio which are doing better because they have a good SUV or MPV kind of a basket, that is which is growing faster.

But in general, passenger vehicle growth is not expected to be more than 3%, 4%, 5%. Two wheelers, again, there is a little bit of traction compared to the low base that we have, so we are a little positive there.

But if you see, two wheelers growing at maybe 8-9%, cars probably at 3% to 5%, commercial vehicles also not showing growth.

So, in general, the situation is not that great. Within the two-wheeler space, there is case for looking at the premium names, the higher end names because that is the trend that we have been seeing consistently, that the higher end specs vehicles whether it is SUVs or two wheelers, bikes, etc, are doing better.

So, those kind of names we are positive on. But overall, I would say we are underweight. Auto ancillaries is a mixed bunch and we have a good smallcap, midcap spectrum to choose from. And there are many interesting companies which are doing extremely well in spite of the overall pie not growing so well.

So, they are expanding their product range, they are expanding capacities, they are also going for exports. So, we have three or four stocks in our portfolio in the auto ancillary space which are doing things differently to basically make sure that they are not that directly impacted by the slowness in the industry, so these are stocks where we can see that there is earning visibility for the next two, three, four, five years even without the assumption that the sector will grow, so those stock picking opportunities are there in the auto ancillary space.

Do you see your top five holdings changing in the next 12 months?
Mihir Vora: No, I do not think so. We are basically growth investors and I do firmly believe that the domestic cyclicals will continue to do better than the exporters, so we are underweight on largecap IT. We have some midcap IT picks, but in general IT is underweight for us. Commodities, energies is underweight for us.

Most utilities are underweight for us and we are positive on the financials, including capital market plays, and most of the industrials like construction, capital goods, and the sub-segments like defence, etc. Power is a big theme for us.
Within healthcare, we are more positive on some of the CDMO names, some of the laboratory names and a couple of hospitals.

So, we will continue to be positive on the healthcare space, whether it is CDMO or diagnostics or hospitals and we will continue to be positive on industrials like capital goods, construction, defence, etc, power that we talked about.

And financials, both the segments, lenders as well as non-lenders, in non-lenders we have the capital market plays, etc, those are also looking interesting because all these segments have really gotten beaten down in the last three-four months.