investing strategies: Valuations looking reasonable, but earnings growth remains a concern: Dipan Mehta

“Specifically, we do not have a stock list ready, like a shopping list per se. We are still observing what has happened in the quarter which has gone by,” says Dipan Mehta, Director, Elixir Equities.

What does one do, just sit it out and watch or do you think it is time now to selectively start buying largecaps or any other for that matter?
Dipan Mehta: See, for many-many months I have been quite negative on the market, but now I am getting cautiously optimistic as well and I do feel that there has been a steep correction in many stocks. Valuations have come to reasonable levels. They are not necessarily cheap. And the steps which the government has taken to revive the economy, with the lag it will start to have its effect as well.

So, now is the time to start gradually putting money to work. And every correction or any lower levels from these kind of levels is an opportunity for investors to put money to work.

Specifically, we do not have a stock list ready, like a shopping list per se. We are still observing what has happened in the quarter which has gone by. But I do feel that the kind of impetus given to consumption, a lot of stocks over there may turn out to be winners over the next 6 to 12 months.

We have been discussing that valuations were expensive, earnings were slowing down. While valuations is getting addressed in some names, earnings recovery may not be the real deal, that is my only concern. So, there were two reasons why markets fell like we have discussed, earnings and valuations. Valuations are looking okay, not cheap, but okay. But earnings recovery, I do not know if it is really there.
Dipan Mehta: The steps taken by RBI and the government certainly will go towards improving the GDP and the earnings growth rate. Interest rate cut and more money in the hands of the consumer, especially urban consumer, will act as a bit of a boost to the economy.

What is keeping the sentiment down just now is the uncertainty around Trump policies on tariffs and once things settle down over there and we know exactly what the tariffs are and who is impacted by how much, I think that that will kind of create a more stable environment and it would lead to more improvement in the confidence and lowering of uncertainty which may get investors to be again interested in the market.

I am pretty confident that three to six months down the line, at best 12 months, we should see a revival in the economy and the GDP growth rates. And honestly, this particular earning season, because we did not have very high expectations, I thought it was pretty okay. In fact, turned out to be slightly better than what we expected.

And there are cycles within the economy also, so we have seen a down cycle in many sectors for the last three-four quarters or so and that may tend to turn upwards. And also, from FY25-26 onwards, the base effect also will start to help investors ascertain how earnings growth are actually shaping up.

Since we have a tariff, let us understand the talking point today and these are comments which have come from Donald Trump. I would be imposing 25% tariff on autos and pharma. Let us for a minute understand. Indian exports and 33% of the total exports for India, they come from only one market, which is US market. I am not so sure if tariffs are coming for every generic company, but if they come, what happens to the Indian pharma sector?
Dipan Mehta: Yes, that is right. Nikunj, that is one of the issues. We were very positive on the pharma sector until the President Trump announcing that he would have to put tariffs on Indian pharma as well and that certainly puts a cloud over the growth rates because US generic is a big growth driver and profit centre for a lot of pharma companies and that is the reason that still I think markets are pinned down and sentiment is low because there is no clarity on how these tariffs are going to play out and mind you, it is not just what tariffs are imposed on Indian exports, but also what tariffs are imposed on other large global exporters because that has an impact on global trade and it has an impact on what comes into India at what price point and whether we will be dealing with dumping of goods because they cannot be exported to USA and there is just far too much uncertainty around how the global trade is going to shape up and that is also one of the reasons why the markets are slightly under pressure.

But over the next few months, this uncertainty should certainly be over and done with and more clarity will come and then maybe you could look at domestic focus companies or look at exporters who are not impacted by tariffs.

So, right now, there is a bit of a confusion around all export-oriented businesses and from that point of view investors should not make further investments in such sectors or companies and maybe focus on domestic-oriented businesses.