Sunil Singhania warns against small and mid-caps seeing meteoric rise, says overall market valuations reasonable

Singhania advised investors to be cautious, particularly when paying high PEs without commensurate profit growth, as this could lead to significant losses.

Leading fund manager and founder of Abakkus AMC Sunil Singhania cautioned investors against the meteoric rise in some small- and mid-caps but said overall market valuation appeared reasonable. Singhania pointed out that public sector defense companies trading at 17-18 times sales are experiencing excessive valuations.

Similarly, companies associated with railways and those announcing ventures into electric vehicles (EVs) have seen stock prices surge without corresponding profit increases, leading to a potential bubble. Additionally, he highlighted a frenzy in IPOs from smaller companies, urging investors to exercise caution. “I am a little bit of a value conscious investor – investors have to understand that a good company or a good team is not necessarily a good stock,” said Singhania.

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Despite these concerns, Singhania emphasized that markets have been quite resilient post-pandemic, with improving fundamentals. He explained that the Nifty, on an FY26 basis, is at 17.3 to 17.4 times PE, which is only 5-6 percent higher than the 10-year average. This is far from a euphoric 25 or 30 times PE. On a trailing basis, Nifty is at 20.2 times. “On a trailing basis, current valuations are similar to 2020 levels, indicating that the gains in Nifty have mirrored profit increases,” said Singhania.

Singhania acknowledged that while smaller companies and theme-based stocks have surged, overall valuations remain reasonable. He emphasized that Indian retail investors are finally benefiting from the country's growth. The rise of SIPs (Systematic Investment Plans) has ensured that every market dip attracts new investors, reinforcing the market's growth. He said, the fact that every dip is getting bought into, is a positive sign as long as investments are made into fundamentally strong companies rather than speculative themes.

However, Singhania advised investors to be cautious, particularly when paying high PEs without commensurate profit growth, as this could lead to significant losses. He stressed the importance of fundamentals and value consciousness in investment decisions, urging investors to avoid getting caught in speculative bubbles. “I would say a lot of pockets where investors have to be really careful. Particularly, if you're paying something like 100x to 200x P/e, without commensurate increase in profit, then you are going to get stuck,” he said.

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