Bull vs Bear: AIF managers slug it out over market valuations amid diverging earnings, flows

Bull vs Bear: AIF managers slug it out over market valuations amid diverging earnings, flows

Stocks may be showing resilience to Trump Tariff noise, but asset managers remain sharply divided on whether the market still offers value. At a gathering of top alternative investment fund (AIF) managers in Mumbai, the bulls and bears locked horns over what lies ahead — with sharply contrasting views on valuations, earnings visibility, and the sustainability of flows. While some saw enough growth and capital-efficiency tailwinds to remain fully invested, others flagged frothy pockets, global disparities, and the rising risk of earnings downgrades.

“Cheapness is not value,” said Vikas Khemani, Founder of Carnelian Asset Advisors, arguing that Indian markets remain reasonably priced — perhaps even cheap — when seen through the lens of growth and cost of capital. “With ROEs at 15 to 16%, growth visibility of 13 to 15% over five to seven years, and a historically low risk-free rate, we are fully invested… hardly on cash,” he said.

He broke down valuation into three components: yield, growth in yield and the discounting rate.

Khemani dismissed concerns around a slowdown in earnings or capital expenditure, attributing last year’s weak prints to a temporary liquidity squeeze ahead of elections. He expects a recovery, helped by recent 100-basis-point rate cuts.

“Every company that we own is doing more capex than in the last 50 years… factory builders are booked for three years,” he said, predicting that manufacturing GDP could rise from 16% to 25% over the next decade — a shift he likened to the US railroad boom.

Taking a diametrically opposite view, Siddhartha Bhaiya, MD & CIO at Aequitas Investments, warned that India’s equity markets are being held up by liquidity rather than fundamentals. “The magnificent seven (in the US) are cheaper than 80% of the Nifty 500 companies,” he said, adding that more than 1,000 stocks trade at over 60x earnings, implying an earnings yield of less than 2% — lower than post-tax returns from a savings account.

He pointed to a disconnect between macro indicators and market exuberance: GST collections rose just 1% last month, corporate tax growth was negative, and BSE 500 earnings were flat year-on-year. “I would be lying if I said I am not looking abroad,” Bhaiya added, citing PB Fintech’s 400x earnings multiple versus a larger, profitable Chinese peer listed on Nasdaq at 9x with $350 million net cash.

Bhavin Shah, Founder & CIO of Sameeksha Capital, took the middle path. “Over the last 30 years… India has somewhat been the best performing market in the world in dollar terms along with the United States,” he noted. While commending Indian promoters’ ability to maintain profitability in tough environments, Shah acknowledged that small- and mid-cap valuations have “run ahead of fundamentals.”

Ganeshram Jayaraman, Managing Partner at Avendus, argued that earnings will eventually drive market direction. “We are prisoners to earnings. SIP flows and capital flows cannot be the fundamental reason to buy stocks,” he said. He flagged a steady downward revision in FY26 earnings growth for the BSE 500 — from the “late teens” a year ago to single digits now, even before one quarter’s numbers are in.