Speaking to ET Now, Jain said the combination of stronger domestic fundamentals, improving external balances, and stable valuations has strengthened his outlook for Indian equities. While he remains optimistic about the broader market, he believes opportunities are emerging selectively across sectors, particularly in large-cap banking and information technology.
Macro environment turns supportiveJain believes India has moved past the macro challenges that weighed on investor sentiment over the past few years. He pointed to a healthier balance of payments outlook, supportive measures taken by the Reserve Bank of India, and a shift in equity ownership from foreign investors to domestic institutional investors as key positives.”I am quite constructive on the markets. The macro challenges that India was facing are clearly behind us. The balance of payments in the current year should be materially positive because of both external factors and the steps the RBI has taken. Valuations are reasonable, and stocks have moved into very strong hands from foreigners to domestic institutional investors. Multiples are reasonable, so I am actually quite constructive on these markets,” he said.
IT sector presents value despite near-term challengesThe recent correction in IT stocks, particularly following weak guidance from some mid-tier companies, has created value, Jain said. While pricing pressures remain a concern, he does not expect Indian IT companies to witness a structural decline in business.He believes the current pricing environment is cyclical and could improve as enterprises increase technology spending to adopt artificial intelligence.”There is value, in my opinion, and I do not think these businesses are going to melt away. Even in the current deflationary environment, toplines are not negative. They are holding on, maybe flattish or with very low growth. As enterprises adopt AI, they will need to spend more, and I do not think IT budgets are likely to degrow,” he said.
However, he cautioned that Indian IT stocks continue to face valuation pressure from cheaper global peers.
“The challenge is that similar businesses outside India are trading at 20-30% lower multiples. That will continue to pose a headwind for Indian IT stocks until there is some change in sentiment,” he said.
Potential triggers could revive IT sentimentDespite the valuation gap with global peers, Jain believes several factors could unlock value in Indian IT stocks over time.
“When you are getting good value, it is very hard to forecast how that value will unlock itself. Maybe earnings turn out slightly better than expected, foreign selling stops, domestic investors continue to support these companies, or some companies announce buybacks. Any of these could become a trigger,” he said.
Avoids specific view on ER&D companiesAsked about engineering research and development companies, which have seen mixed commentary amid slowing European auto demand, Jain chose not to offer a stock-specific opinion.
“Let me not comment specifically on ER&D names. I do not think I would be able to do justice there,” he said.
Large private banks offer compelling valueJain is particularly constructive on large private sector banks, arguing that the sector has been weighed down by prolonged foreign institutional selling despite improving fundamentals.
He noted that credit growth has strengthened, valuations have become attractive, and the unwinding of long-held foreign positions appears to be nearing completion.
“Over the last one or two years, value has clearly emerged in large private banks. Credit growth has inched up sharply, and as FCNR(B) dollars come in, it will be positive for banks. The sector has massively underperformed because foreigners have been reducing positions, but at current valuations I would be quite constructive,” he said.
Largecaps likely to outperform as foreign selling easesWhile small and mid-cap stocks have staged a recovery from recent lows, Jain believes large-cap companies currently offer better value. He expects improving macro conditions and easing foreign selling to benefit the large-cap segment over time.
“As a category, largecaps are offering better value. They have borne the maximum brunt of foreign selling, and as macro conditions improve and foreign selling abates, largecaps should outperform smallcaps,” he said.
At the same time, he acknowledged that opportunities continue to exist in the broader market.
“After the correction in small and midcaps over the last two years, value is emerging on a stock-specific basis. It is going to be a stock picker’s market,” he said.
Strong economy could lift large-cap earningsJain dismissed concerns that earnings growth will remain confined to smaller companies, arguing that India’s underlying economy remains robust. He cited healthy demand conditions, strong credit growth, rising GST collections, and supportive nominal GDP trends as reasons why large-cap earnings could also accelerate.
“The underlying economy is doing extremely well. Credit growth, GST numbers and demand conditions point to a very robust economy. We could see some acceleration in earnings growth even in the large-cap space,” he said.
No clear view on real estateWhile acknowledging that the real estate sector remains important, Jain said he does not track it closely enough to offer a meaningful opinion.
“It is a good space, but I do not track it very closely. So, let me not comment on that,” he said.
Consumer discretionary preferred over staplesJain drew a clear distinction between consumer staples and consumer discretionary businesses, arguing that the former faces slower growth and increasing competitive pressures despite its strong business quality.
He believes discretionary consumption offers better long-term growth opportunities, although investors must remain disciplined on valuations.
“Consumer staples are highly penetrated and will continue to exhibit slow growth. They are also facing increasing competition from organised retail, D2C brands and private labels. The businesses are excellent, but valuations remain demanding relative to likely growth,” he said.
Instead, he prefers businesses linked to discretionary spending.
“I would be more inclined towards the consumer discretionary space than the consumer staples space,” he said.
He added that the discretionary universe is broad, covering automobiles, airlines, consumer durables, building materials, food delivery, cosmetics and apparel retail, making stock selection critical.
“It is a very diverse category. The attempt should be to have a realistic view of what growth is sustainable over the long term and what is already priced in. My preference would be to do more work in that space than in the staples space,” he said.
OutlookJain’s investment outlook remains firmly constructive. He believes improving macroeconomic conditions, healthier valuations and resilient domestic liquidity are creating an attractive backdrop for equities. While he sees selective opportunities across sectors, his preference currently lies with large-cap companies, private sector banks, and select consumer discretionary businesses, while viewing stock selection as the key driver of returns in the small- and mid-cap universe.
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