Shailendra Kumar, the Chief Investment Officer at Narnolia Financial Services believes the Bank Nifty appears to be launching a new bull phase.
This rally is underpinned by very low valuations, which were at a 10-year low (or more) before the ascent began, he said in an interview to Moneycontrol.
After Bihar election results, he noted that the overall policy landscape is now stabilized, ensuring greater certainty and continuity in governance moving forward.
Meanwhile, going forward, if valuations turn attractive or earnings upgrades gain meaningful momentum, the market could initiate its next bull phase, he believes.
What is your take on the outcome of the Bihar election results?
The victory of the National Democratic Alliance (NDA) in the Bihar elections effectively removes the remaining political uncertainty that arose after the May 2024 central elections. With the NDA securing successive wins in Haryana, Maharashtra, and now Bihar, the overall policy landscape is now stabilized, ensuring greater certainty and continuity in governance moving forward.
What is your view on the outperformance of the Midcap and Bank Nifty indices compared to the Nifty 50? While Midcap and Bank Nifty have already hit new record highs, the benchmark index is still lagging.
The Nifty Midcap 100 has recently achieved a new high, but its valuation multiple is stretched. This high valuation is expected to limit further upward movement. The midcap index remains vulnerable to a sharp correction if the market enters a weak phase, especially until earnings growth momentum returns to the sector.
In contrast, the Bank Nifty appears to be launching a new bull phase. This rally is underpinned by very low valuations, which were at a 10-year low (or more) before the ascent began. Sector fundamentals are improving, with growth returning to the banking sector. Specifically, during Q2FY26, most banks showed signs of stronger advances growth, and provisions are anticipated to decline from the subsequent quarter.
What are the next potential triggers that could propel the market into uncharted territory?
The Indian market is likely to see a short-term boost from any positive news regarding the tariff issue. However, the sustainability of the rally will be doubtful. The core issue is that the broader market is still trading above its long-term average valuations, and these elevated levels cannot be justified until robust earnings growth materializes.
Given the high overall market valuations, investors should adopt a selective approach and focus only on large-cap stocks that offer attractive valuations.
What is your assessment of the September quarter earnings season, which concluded this week? Have you observed the beginning of more upgrades than downgrades in earnings estimates?
The September quarter earnings season and management commentaries have broadly aligned with expectations. Upgrades have marginally outpaced downgrades; however, these upgrades remain modest, and the gap between the two is insufficient to meaningfully alter market direction.
We have made a minor adjustment to our Nifty FY26 EPS forecast, raising it from Rs 1,096 to Rs 1,101. What stands out clearly is that the downgrade cycle has concluded. Going forward, if valuations turn attractive or upgrades gain meaningful momentum, the market could initiate its next bull phase.
Do you think banking and financials are at the beginning of a new rally, given the likely benefits from favourable credit trends and improving asset quality? Which areas within the sector deserve the highest exposure?
The banking and financial services sector is at an inflection point, poised for a 3-4 year outperformance cycle. This secular trend will create scaling opportunities across banking, insurance, and capital markets for companies with strong execution capabilities.
We forecast that 2-3 Indian banks will achieve top-10 global rankings by market capitalization, while the insurance and capital market segments will also witness the emergence of large players.
Apart from financials, do you believe the power and renewables capex cycle remains the strongest multi-year investment theme?
India's power generation capacity is projected to double by 2031, with renewable energy sources expected to contribute approximately 75 percent of this expansion. This indicates sustained capital expenditure momentum over the coming years, making renewable energy and power transmission attractive sectors for investment consideration.
Some investors believe India is an ‘anti-AI’ trade. What is your view, and how do you interpret this perception?
Global investors have been actively increasing their exposure to Artificial Intelligence by investing in companies in the US, Taiwan, and South Korea, but this capital has largely bypassed India so far.
Indian IT companies, especially the large listed firms, are primarily focused on providing application support and reliable services to major multinational corporations. Historically, these companies have missed the initial wave of innovation in new technologies.
However, their strength lies in adoption: once an innovation stabilizes and is ready for large-scale enterprise implementation, these large Indian IT players are uniquely positioned to step in and benefit significantly.
India does have many innovative players building around AI, but these are mostly unlisted startups.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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