Daily Voice: ‘Low-growth phase is over,’ why this MD thinks markets are stronger than they look

Raghvendra Nath is the Managing Director at Ladderup Asset Managers

According to Raghvendra Nath, the Managing Director at Ladderup Asset Managers, many companies across sectors delivered results that exceeded expectations. The low earnings phase that was seen over the last 4–5 quarters seem to be behind us, he said in an interview to Moneycontrol.

He noted that positive earnings are not limited to just 2–3 sectors, many have performed better-than-expected. Hence, he expects this earnings momentum to continue.

From a longer-term perspective, he believes markets are in a healthy position. And current consolidation phase could offer good entry opportunities for investors with a medium- to long-term horizon, he said.

The rally that we saw from 2021 onwards was largely driven by strong retail participation both in the cash and derivatives markets. In fact, we saw a nearly fourfold increase in the number of demat accounts during that period, which clearly reflected the surge in retail investors entering the market. Most of these new investors had limited understanding of the capital markets, and the easy liquidity and momentum-driven phase seems to have ended, with retail participation declining quite sharply.

We can see this trend from the results of major broking companies, many of which have reported a drop in revenues over the past year. Since institutional investors, both DIIs and FIIs, make up only about 40–45% of total market participation, retail investors play a very important role in driving overall market activity.

At the same time, valuations across large, mid and small-cap segments had become quite stretched, while earnings growth had slowed considerably in the previous financial year, creating a huge gap between valuations and earnings growth. So, valuations were difficult to justify at that stage.

Now, things do look somewhat better, earnings have started to recover, and valuations have become a bit more reasonable. That said, several global factors, such as global interest rate trends and geopolitical uncertainties, are still influencing market sentiment, which is why the markets have remained in a consolidation or sideways phase.

From a longer-term perspective, though, I believe markets are in a healthy position, and this phase could offer good entry opportunities for investors with a medium- to long-term horizon.

I don’t see any major triggers soon. However, going forward, it will be important for inflation to remain moderate for interest rates to be cut further. If this play out, the overall demand scenario is likely to improve more, which could bring fresh momentum into the market.

Additionally, if trade negotiations with the US are finalized, it could provide a significant boost to investor sentiment and FIIs may once again turn positive for the Indian markets.

Many companies across sectors delivered results that exceeded expectations. The low earnings phase that we were seeing over the last 4–5 quarters seem to be behind us. The average earnings growth at the Nifty level in the last quarter was around 15%, and a similar growth rate might be observed this time as well.

Positive earnings are not limited to just 2–3 sectors, many have performed better-than-expected. Despite high gold prices, jewellery companies have delivered good results. Improved demand in both urban and rural areas, along with increased capex, has also contributed to overall earnings growth of Banks, NBFCs, consumer durables and infra stocks. All of this has helped boost earnings, and we expect this momentum to continue.

We can expect earnings to remain strong on the back of several positive developments like income tax cut which is boosting domestic demand, combined with revision in GST rates improving both scale and profitability for companies. We saw the highest ever retail sales for passenger and 2-wheeler vehicles in October, which was a result of the festive season as well as the combination of the above two factors.

Macroeconomic numbers like Purchasing Managers Index (PMI), and Index of Industrial Production (IIP) are also improving. Other supporting factors such as higher government expenditure, moderating inflation, declining interest rates will improve consumer spending and corporate investments further. Lastly all these elements are positive indicators of stronger corporate performance, and since most of them are sustainable in nature, we do not expect earnings to decline from here.

The rupee has been steady lately, hovering around the 88 mark, which suggests it might finally be finding some stability after all that volatility we saw earlier. A big reason for this calm is the RBI’s quiet intervention which helped cool things down and bring a bit of balance back to the market.

Going forward, a lot will depend on how the India–US trade talks pan out. If there’s some positive movement on the tariff front, it could lift sentiment and give the rupee some room for appreciation.

For now, though, with the RBI’s steady hand in the background and less speculative pressure, the currency seems to be on a firmer footing even though, as always, global factors will ultimately steer the next move.

To be honest, the bond market has been quite unpredictable lately. Most of us expected that once the RBI starts cutting rates, bond prices would rise, and yields would fall as that’s what typically happens. But this time, things haven’t followed that pattern. Even after the rate cuts, yields have stayed relatively high, and bond prices have fallen. Because of that, investors are finding it a bit difficult to assess the right value for bonds right now.

Usually, when interest rates drop, bond prices tend to climb. But at the moment, that link just isn’t as clear as it normally is. There’s also quite a bit of uncertainty about when the next rate cut might come through.

Given that backdrop, we’ve been leaning more toward shorter-term corporate bonds rather than going long-term government securities; and since the yield curve isn’t really offering much of a premium for longer durations, staying on the shorter side just feels like a better approach for now.