Daily Voice: With relatively strong macro fundamentals and flows, Waterfield's Vivek Rajaraman doesn't see too much downside in market if any

The strong Q4 FY25 performance of 7.4 percent growth, significantly above expectations, has reinforced confidence in India's economic resilience. Most projections for FY26 (including the RBI and the Economic Survey) suggest growth will be in the 6.3-6.8 percent range, which represents steady and sustainable expansion. The consensus indicates better growth momentum compared to earlier concerns, with the strong Q4 finish providing a positive base for continued economic expansion in the coming fiscal year.

Do you believe valuations are currently attractive for both private and public sector banks?

Private sector banks are reasonably valued as of today between 2 - 3.3 price to book, which is around their 5-year average. Except for Axis among the large banks, the rest have moved up significantly in the last year, beating broad market price growth. From here on, further growth will depend upon earnings growth that they will deliver and not much re-rating from the market. Public sector banks have always traded well below their private bank counterparts, and their investment thesis is not directly comparable to private banks.

Do you strongly believe that defence is a structural story spanning more than 10 years? Do you expect significant participation from the private sector?

The longer-term vision for the defence industry in India is ambitious. The plan prioritizes self-sufficiency and then leadership in key areas where we can build capabilities. Of course, the current manufacturing ecosystem is dominated by the public sector, which accounted for ~70 percent of all defence production in FY2024-25. However, the share of the private sector has steadily increased from only 14 percent in FY17 to 21 percent in FY25. This has also corresponded with a 7-8 percent growth in the defence budget since FY20. We see this sector getting a lot of focus.

Are you cautious about capital market plays given their current valuations?

We can surely use the current market opportunity to reduce exposure to pockets of high valuation, for example, midcap stocks (current P/E of 34x v/s 24x for Nifty50). India, due to our liquidity, growth,h and open market, enjoys relatively high valuations as compared to other emerging markets. I believe this will continue, and as we have seen in the recent past, any dip has been bought into fairly quickly. What I would prioritize is more liquidity within the equity portfolio.

Do you expect Indian equity markets to hit record highs in the second half of 2025 and end the year with over 15 percent returns?

The current consensus FY26 earnings growth estimates for the Indian markets, as represented by Nifty50, are Rs 1,164 EPS, a growth of only around 6-7 percent over FY25. These estimates, however, vary and are updated every quarter. We are now fairly valued on both a price-to-earnings and price-to-book basis. However, with relatively strong macro fundamentals and flows, we don’t see too much downside. The markets might react to other triggers and relative attractiveness as compared to other global markets.

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