Markets poised for recovery as odds favouring earnings growth: Enam's Manish Chokhani

The stock market’s composition has also evolved in the last five years, with top 8-9 companies now accounting for 25 percent of India’s market capitalization, and the next ten firms contributing another 25 percent.

Enam Securities’ Manish Chokhani sounded optimistic about an earnings revival next year, helped by recent policy measures to encourage domestic consumption, but added that growth may not necessarily come at lower valuations.

Over the past year, domestic corporate earnings have weakened, yet valuations have remained stretched. “Markets are unlikely to deliver growth at reasonable valuations. It is not about cheapness. If you want cheap markets, look at Brazil,” Chokhani said in an interview with Moneycontrol.

The Enam CEO said spaces like PSU banks and metals are below 20 times their price-to-earnings multiples, and IT stocks are hovering around 20 times, but certain high-growth companies are trading at even higher valuations. Chokhani explained that investors are chasing a mix of price and growth, making the market structure nuanced.

Read More: AI boom may face reality check, hard assets poised for further gains: Enam's Manish Chokhani

Manish Chokhani, however, sounded optimistic that policy tailwinds that could support an earnings recovery, going forward. “We have seen corporate tax cuts, GST reductions, interest rate cuts, and regulatory encouragement for banks to lend. The government is also incentivizing entrepreneurs through production-linked schemes. With these factors, the odds are now in favour of growth,” said Manish Chokhani, adding that after a sideways year in terms of valuations, these measures could hopefully give Indian equity markets some boost.

Watch: Indian stocks vs gold, silver, global equities: Manish Chokhani on where to sow, where to harvest

The stock market’s composition has also evolved in the last five years, with top 8-9 companies now accounting for 25 percent of India’s market capitalization, and the next ten firms contributing another 25 percent.

“Today, 70-75 percent of the market is more broadly distributed. While top-end IT companies and Reliance Industries have large bases limiting rapid compounding, the financial sector, especially banks, is set for acceleration, creating opportunities at the index level,” Chokhani said.

In a concentrated market, individual investors are increasingly focusing on bottom-up stock selection, and diversifying into mid or smallcap funds, added Manish Chokhani.

The veteran investor also pointed out that foreign institutional investors have refrained from large purchases in domestic equities, while DIIs have occupied that space. “While FIIs have been cautious, domestic investors have bought more than them. With reforms and supportive policies, earnings momentum - particularly in banking – returning, India is poised to be back in the race,” Chokhani said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.