Smart Talk | Nifty enters ‘very attractive’ zone

Meanwhile, the Economic Times daily newspaper is available online now.

Key points

• ETMarkets Smart Talk Nifty enters 'particularly attractive' zone as earnings improve: Union AMC's Sanjay Bembalkar.
• Q) Market is showing signs of stabilisation after posting over 1% back-to-back returns in June & July.
• India's equity market may be entering a more favourable phase as earnings resilience, a revival in capital expenditure and moderating valuations improve the risk-reward for long-term investors.
• He believes the next leg of market returns is more probable to come from earnings delivery rather than further valuation expansion.

Despite muted foreign flows and persistent geopolitical uncertainties keeping a lid on the broader market, corporate earnings have remained encouraging and a number of manufacturing segments are showing signs of stronger expansion ahead.

India's equity market may be entering a more favourable phase as earnings resilience, a revival in capital expenditure and moderating valuations improve the risk-reward for long-term investors. Despite muted foreign flows and persistent geopolitical uncertainties keeping a lid on the broader market, corporate earnings have remained encouraging and a number of manufacturing segments are showing signs of stronger expansion ahead.

In an interaction with Kshitij Anand of ETMarkets, Sanjay Bembalkar, Head of Equity at Union Asset Management Firm, stated the time correction and earnings uptick have pushed the Nifty into the "very attractive" zone from a fair-value perspective. He believes the next leg of market returns is more probable to come from earnings delivery rather than further valuation expansion. While highlighting export-focused manufacturing, data-centre-led technology spending and energy independence as key themes driving India's evolving capex cycle, bembalkar additionally sees opportunities in financials, healthcare, capital goods and industrials. Meanwhile, he advises caution in pockets where valuations have run ahead of earnings visibility and in sectors exposed to tariffs, geopolitical risks and input-cost pressures. Edited Excerpts – Live Events.

Q) Market is showing signs of stabilisation after posting over 1% back-to-back returns in June & July. How are you reading markets? A) Markets comprise of sizeable number of participants who discount fundamental factors in costs but in short term they are swayed by capital flows and emotions. Fundamentally: 1) earnings delivery has been spot on, 2) we are in the capex revival phase which could lead to uptick in expansion for corporates and 3) near term cyclical factors like monsoon has been favourable. Though fundamentally, we, India is doing all right, we have yet not seen solid capital flows in our favour. Global capital allocators remain under-allocated to India. Positive fundamental foundations are not allowing market to go down nevertheless unfavourable capital flows and geopolitical uncertainty is not allowing market to rally hard either. Capital is flowing towards select stocks in the small-cap and mid-cap segments, leading to certain pockets of the market performing particularly well. While broad indices remain lacklustre, this has led to a sizeable divergence in performance throughout different pockets of the market. From our Fair Value Spectrum perspective, the time correction & earnings uptick has brought the Nifty into the "very attractive" zone, improving the risk-reward for investors with long term investment horizon. (Source – Fair Value Spectrum – Fair Value Spectrum.pdf) Q) Most of the June quarter results are out. What do you create of Q1 numbers and management commentary? A) Q1FY27 earnings have been encouraging. Performance throughout our coverage universe has been resilient on both sales and profitability despite the volatile global environment and elevated raw material/fuel costs. Management commentary has additionally remained constructive, particularly around domestic demand. Multiple manufacturing sub-sectors have mentioned regarding upcoming export opportunities thanks to improvement of India's competitive positioning as well as positioning as a favourable business destination post multiple Free Trade Agreement (FTAs). In practice, the domestic policy and regulary environment, including recent GST rationalisation, could provide extra backing to consumption over time. IT sector remains a relative exception, with global demand uncertainty, AI impact and tariff-related reservations continuing to weigh on the outlook. We expect overall markets will drive returns from the earnings delivery rather than valuation expansion in the medium term as uncertainty around global economic systems continues to cloud the investors' minds. Q) Private sector capex announcements have remained subdued over the past 12-18 months. If this investment cycle continues to be delayed, could it push back the projected earnings expansion for India Inc.? What are your views on the outlook for private capex and its impact on corporate earnings? A) Key sizeable manufacturing sectors have already been operating at peak utilisation levels for some time now. My belief has been that our corporates are value conscious and they need proof of certainty around pay-back before they commit sizeable capex. Analysis from ICICI securities indicates that during the FY26, overall listed universe has spent Rs.12.6 lakh crore of capex within which 168 firms have spent more than Rs.1, 000 cr. This is a substantial commitment and jump over past years. Nature of current capex cycle is different than past cycles and is centred around 3 key themes: 1) Export focused Manufacturing (auto, defense, electronic manufacturing and pharma CDMO), 2) Compute focused Technology spends: compute capacity creation (data centre capex, GPUs and compute ecosystem led) and 3) Energy independence: ecosystem diversification (diversification away from fossil fuels, coal-gassification, renewable energy). Though early signs of consumption pick up are visible domestically we are yet to see broad based consumption uptick. This may provide further boost to capex over period of time.

For now, smart Talk Nifty enters 'very attractive' zone remains the part of the story worth watching, and further updates are likely as more details are confirmed.