MC Exclusive: Even die-hard optimists will be surprised: Maran Govindasamy on where value still hides in Indian markets

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Even die-hard optimists will be surprised by how some pockets of the market perform over the next three years, says Maran Govindasamy, Founder of Unifi Capital, in the Diwali Blockbuster edition of The Wealth Formula with Mahalakshmi.

Govindasamy notes that while the Sensex and Nifty have delivered long-term returns of 14–15 percent per annum, such returns have historically come with 25 percent volatility. Over the last three years, however, volatility has been unusually low — and returns unusually high. “When you have three or four years of above-average returns at below-average volatility, it’s typically followed by a phase of lower returns or higher volatility — or both,” he cautions.

At market peaks, he says, 50–60 percent of companies were in bubble-zone valuations, while 15–20 percent were cheaper than three years ago, and about 25 percent were fairly priced. “You can always argue that markets are expensive by looking at the 60 percent, or argue they’re cheap by focusing on the 20 percent — but India’s market is too heterogeneous to be overgeneralized,” he explains.

Even within the BSE 500, valuation gaps are stark: 35–36 percent of large-cap earnings come from PSUs trading at 10–12x PE, while the rest trade above 30x. “An index PE of 22 hides this polarization,” Govindasamy says. “Cheap and expensive stocks exist across market caps — it’s not about size, it’s about where the sectoral earnings justify the valuations.”

He adds that 20 percent of the market today is genuinely cheap, though some of that is due to sector-specific concerns — particularly in financial services, where valuations have fallen from 5x to 2.5x price-to-book. “They’re cheap, but not all are necessarily a buy,” he warns. “You have to assess future earnings power.”

Govindasamy believes India will surprise even the most optimistic investors over the next few years — not in overhyped government capex-linked sectors like defence or infrastructure, where valuations have ballooned to 50–100x PE, but in overlooked areas like financials, consumer goods, metals, IT, healthcare, and pharma.

“The tendency to extrapolate recent performance is strong,” he says. “But just because nine out of ten people are bullish on a sector doesn’t mean its earnings will justify current valuations. Companies may do well — shareholders won’t, if they overpay.”

Govindasamy also underscores that India’s markets are bottom-up in nature, not sector-driven. “Sectors like IT may be homogeneous, but many — like NBFCs — are highly heterogeneous. Some will grow 20 percent annually; others will de-grow. You have to be selective and nuanced,” he says.

Even as the economy expands, the market’s composition will continue to evolve — and so will the opportunities, often where few are looking, according to him.