Picture Abhi Baaki Hai: Prashant Jain on market reversal, sector shifts, and the road to steady compounding

Prashant Jain, 3P Investment Managers

Markets may have tested investors’ patience over the past year, but Prashant Jain sees that as the perfect intermission in India’s long-running growth story. In an exclusive Diwali special of The Wealth Formula with N Mahalakshmi, the founder of 3P Investment Managers says the “picture is still very much baaki,” as the time correction has restored balance and valuations to more sustainable levels. From his lens, India’s 7 percent growth potential remains intact, autos look attractive, and large caps are better placed than midcaps and smallcaps. But he warns — this sequel won’t be about fireworks, it’ll be about steady, disciplined compounding. Edited excerpts:

Mahalakshmi:
The blockbuster we’re talking about today is abhi picture baaki hai — your words! So, where are we in the movie now? Since last year, markets seem to be in an interval. Why is that?

Prashant Jain:
That’s true, and it’s not unusual. Earnings growth has been below expectations. Post-COVID, the earnings base was extremely low — profits to GDP were at historic lows — so profit growth from that base looked very high. Alongside that, many new investors entered the market.
Low market levels, low profitability, and fresh participation came together to drive markets briefly ahead of fundamentals. This past year of time correction has been healthy — it’s restored balance. The excesses, especially in large caps, have largely gone.

Mahalakshmi:
So when you say picture baaki hai, how much of the picture is left? Are we past the interval, nearing the climax, or still mid-way?

Prashant Jain:
The India story continues. It’s been unfolding for decades — the Sensex has risen 800 times in the last 46 years. This movie will go on, but expectations must be realistic.
As I’ve often said, fixed deposits in India compound around 11–12 percent a year in nominal terms. India is a low-inflation economy, and we must remember that. After this time correction, I feel more confident that the Sensex can deliver low double-digit compounding over the next few years.

Mahalakshmi:
And over the next one year?

Prashant Jain:
Short-term forecasting is always tricky, but after 15 months of time correction and two to three rounds of FII selling, earnings expectations are now realistic. My sense is that over the next year, markets should deliver positive returns.

Mahalakshmi:
In your latest newsletter, you’ve written that India can sustain 7 percent growth despite global uncertainties and trade disruptions. You’ve also highlighted the rise of electronics manufacturing as a key growth driver. Could you elaborate?

Prashant Jain:
We believe India can grow between 6–7 percent, with potential to exceed 7 percent. Historically, we’ve been weak in electronics manufacturing, but we’re making progress. The same goes for renewable energy and electric vehicles — Indian companies are now launching contemporary products.
In short, we’re improving in areas where our “right to win” was weak. As government and industry collaborate, manufacturing should scale meaningfully, supporting 7 percent plus growth.

Mahalakshmi:
How does that translate into stock opportunities?

Prashant Jain:
Opportunities will be dispersed. Solar and EVs are in favour now, but we must be selective. Growth stories don’t always translate into stock returns, especially when narratives get ahead of fundamentals. We look for companies with sustainable competitive advantages at reasonable valuations.
Post-GST cuts and lower interest rates, automobiles have become more affordable, and incumbents have adapted well to EV trends. That’s why autos remain a reasonable bet, even as new-age companies haven’t yet proven their sustainability.

Mahalakshmi:
You said recently white-collar salaries haven’t kept pace with blue-collar wages, which could weigh on consumption. Has that changed?

Prashant Jain:
Let’s flip that — blue-collar wages have caught up. The number of university graduates has surged, so supply has outpaced job growth, slowing white-collar wage growth. Meanwhile, blue-collar demand has grown faster than supply.

Another factor is EMIs — even small purchases are now financed. That’s pulled forward consumption. As people service multiple EMIs, their ability to spend later gets constrained. Household leverage rose post-COVID but has moderated as RBI tightened.
Consumption should gradually recover, though preferences are shifting — more toward health, education, experiences, and electronics, less toward traditional goods.

Mahalakshmi:
From a market standpoint, where does that leave consumption stocks?

Prashant Jain:
Valuations in staples, durables, and home improvement remain expensive. The only relatively reasonable pocket is automobile OEMs — strong franchises, some volume traction, and fair valuations.

Mahalakshmi:
Is that a tactical or long-term call?

Prashant Jain:
More structural. Auto demand has been weak for six years, but affordability has improved due to lower GST and interest rates. With low penetration, there’s still headroom for growth.

Mahalakshmi:
So where do you see “happy endings” over the next 1–3 years?

Prashant Jain:
Large caps offer much better value than small and midcaps. Consumer staples and discretionary names still look expensive, but broadly, valuations are reasonable across most large-cap sectors. After five years of adjustment, the extremes have normalized.

Mahalakshmi:
But you do own a few small and midcaps in your portfolio.

Prashant Jain:
Yes, selectively. Small caps are a vast universe — we find isolated opportunities. But as a category, they’re expensive relative to large caps.

Mahalakshmi:
Any sectors you’re avoiding?

Prashant Jain:
I’d be cautious about narrative-driven sectors like defense, renewables, and EVs. They’ve rallied 5–10x in five years. Growth is there, but valuations leave little margin of safety, and many of these industries are undifferentiated — rising capacity can squeeze profitability.

Mahalakshmi:
What about pharma?

Prashant Jain:
Pharma is structurally strong — globally competitive, cost-efficient, and quality-compliant. It offers long-term growth potential across generics, CDMO, diagnostics, and hospitals.

Mahalakshmi:
Supply of IPOs has remained strong even in a flat market. Could that cap upside?

Prashant Jain:
Yes, but that’s not bad. Capital is flowing to entrepreneurs across risk tiers — great for the economy, even if long-term returns from many IPOs disappoint investors.
The heavy supply has prevented markets from overheating, which is healthy. Most new supply is outside the Nifty, so large caps could outperform as their supply is limited.

Mahalakshmi:
Does the wealth effect of flat markets still weigh on consumption? And what about gold — which has surged?

Prashant Jain:
Culturally, gold isn’t for spending — it’s generational wealth. A rise in gold prices doesn’t fuel consumption. Stock market gains, however, often do. Flat markets, therefore, can dampen discretionary spending.

Mahalakshmi:
ICICI Prudential’s Naren says today’s risk resides in equity investors’ portfolios, not corporate or bank balance-sheets. Do you agree?

Prashant Jain:
Not really. Equity exposure is still under 10 percent of household assets — far below global norms — and it’s unlevered money. Risks are limited, though return expectations may need moderation.

Mahalakshmi:
What’s your view on gold as an asset?

Prashant Jain:
I don’t invest in gold personally, but I see its role as insurance, not investment. If nothing else performs, gold preserves value. I don’t understand this asset class well, but central banks’ recent buying has lifted prices, but such spikes often mark the final leg of a rally in any asset class. So if you’re overexposed, it’s prudent to trim. Equities, in my view, are simpler and more rewarding long term.

Mahalakshmi:
Any strong contrarian views right now?

Prashant Jain:
Not particularly. There aren’t big excesses in this market. The key message is — India’s picture is still baaki hai. This story has run for decades and is far from over.

Mahalakshmi:
And for the equity markets?

Prashant Jain:
Equity returns will moderate as inflation stays low — but that’s a good thing. Low inflation boosts real wealth. Nominal returns may be lower, but purchasing power gains will be stronger. With reasonable valuations post-correction, large caps can still deliver low double-digit compounding.

Mahalakshmi:
What’s one thing you’ve learned this year?

Prashant Jain:
We keep learning constantly, but a recent reminder came from the book Capital Returns. It reinforced how capital allocation decisions shape long-term outcomes — something investors must watch closely.

Mahalakshmi:
And your advice for investors this Samvat?

Prashant Jain:
Don’t extrapolate the past five years — those were boosted by a low COVID base and midcap rebound. Lower your return expectations, and prefer large caps over small and midcaps.

Mahalakshmi:
On that note, thank you so much, Prashant. Wishing you, your family, and the 3P Investment Managers team a very happy Diwali.

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