The panel featured Pramod Gubbi, cofounder of Marcellus Investment Managers; Manish Gunwani, head of equities at Bandhan MF; Gaurav Misra, head of equity at Mirae Asset Investment Managers (India); and Hari Shyamsunder, vice-president & senior client portfolio manager at Franklin Templeton.
Corporate earnings and economic reforms will shape markets, they said. Momentum-driven rallies, “FOMO”, aggressively priced initial public offerings (IPO) pose behavioural and valuation risks. They stressed that active stock selection, disciplined valuation and tracking policy-led demand revival will be critical to outperforming the markets. Edited excerpts:
What is your assessment of market conditions? Does it inspire confidence or invoke scepticism?
Gubbi: We enjoyed nearly four years of exuberance post-Covid, and what we are seeing now is a return to normalcy. Valuations, however, remain above historical averages. Between caution and optimism, it’s reasonable to say investors must adopt a stance of cautious optimism. At its core, equity investing is about risk management. There are no obvious, broad themes to chase at the moment. Returns and earnings growth have both been in single digits, and while valuations have time-corrected, they are far from “screaming buys”.
This is exactly the phase where our jobs become most relevant — where stock-picking takes centre stage and markets turn bottom up. The easy money of the previous cycle is no longer available. Investors must remember that equities are inherently long term: They demand discipline, conviction and a focus on fundamentals.
Gunwani: Over the long term, equities typically deliver around 5-7 per cent above inflation. Over 10-20 years, that premium has been around 6.5-7 per cent. Investors should be neither overly greedy nor excessively fearful. While valuations may not appear cheap right now, one must also consider that global government debt levels are at record highs — and that usually precedes prolonged easy monetary policy. Because the largest borrower effectively influences the interest rate regime, there is always an incentive to keep nominal rates significantly below inflation. Japan is the best example, having run negative real rates for decades. So, I’m not very defensive on equities. On a three- to five-year view, double-digit returns remain my base case.
Misra: From a nine-month, one-year, or longer horizon, my outlook is distinctly constructive. The underlying health of Indian markets is robust and diversified. The lack of returns over the past year stems largely from earlier excesses. Global markets have outperformed India recently, but much of that has been driven by re-rating rather than fundamental earnings expansion. What gives me confidence is the pipeline of policy measures already implemented — whether on direct taxes, indirect taxes, or broader economic reforms. While the past two quarters have been relatively soft for earnings, I expect momentum to pick up steadily. Big components of the economy should recover meaningfully as these reforms take effect.
Shyamsunder: I echo much of what has been said. To understand why India underperformed last year, we must acknowledge that global markets were in a strong bull phase, and we simply didn’t participate because we had already done well in the previous year. More importantly, our earnings have been meaningfully disappointing. The silver lining is that the degree of earnings disappointment is now reducing. Policy support has been extremely strong — both fiscal and monetary. The RBI [Reserve Bank of India] has acted with a degree of aggression we haven’t seen in many years. This sets the stage for a strong recovery in the next financial year. Current earnings estimates look healthy. Historically, forecasts get cut as the year progresses but even with moderate cuts, the setup for next year looks favourable.
What’s your take on corporate earnings for the September quarter? How will the government’s consumption-boosting measures — including tariff and goods and services tax (GST) changes — play out in markets?
Gubbi: We are now near the bottom of the earnings downgrade cycle. For six to seven consecutive quarters, analyst expectations were missed, and earnings were downgraded. This could be the first quarter where we see a clear moderation in downgrades. I’m not suggesting a dramatic earnings recovery — rather, expectations have already been reset lower.
Looking ahead to FY27, mid-teens earnings growth seems achievable. Markets ultimately respond to expectations, and with expectations now beaten down, the setup for equities improves.
On the consumption front, the impact of GST cuts and tax relief is visible on the ground. Consumers have responded positively. Post-pandemic, retail borrowing surged and was later restrained by the RBI’s measures. Households spent four to six quarters deleveraging and reducing EMIs. Now, with tax cuts, GST cuts, and healthier balance sheets, consumption — a significant part of GDP — should strengthen. This should translate into better topline growth for companies exposed to these categories.
Gunwani: I’m not particularly bullish on largecap earnings. Over long cycles, corporate earnings alternate between outperforming and underperforming nominal GDP. Between 2002–11, Nifty 100 earnings grew far ahead of nominal GDP. From 2011–20, they lagged significantly. Then, from 2020–25, Nifty 100 earnings grew at a 20 per cent CAGR [compound annual growth rate] compared to 11 per cent nominal GDP.
After such a strong five-year outperformance, the next three-year CAGR will likely track nominal GDP — around 10–11 per cent. But this is increasingly a smallcap and mid-cap market, driven by technological shifts and geopolitical realignments. The true 20-30 per cent compounding stories of the next decade will likely come from outside the top 100–200 companies.
Do you agree with the view that investors must look beyond the top 200 companies to find the next set of winners? And what is the likely impact of ongoing reform measures on equities?
Misra: On the reform front, we definitely see early signs of improvement in discretionary categories like automobiles. With tax cuts — both direct and indirect — disposable incomes will rise and demand will broaden across income segments.
Next year’s pay commission will add further impetus. For a $4-trillion economy like India, we may see sub-10 per cent nominal growth this year, but as the base resets, we should return to double-digit nominal growth. In such an environment, large sectors such as autos and banks cannot be left behind if India is aspiring to become a $5-7 trillion economy.
The key is choosing strong companies that can capture this opportunity profitably — and doing so at reasonable valuations. Opportunities will exist across the market-cap curve.
Momentum stocks have dominated the recent past, with several investors chasing rallies late and getting hurt. How does one insulate oneself from the noise?
Shyamsunder: Momentum and FOMO are real behavioural challenges — not just for retail participants but even for professionals. Ultimately, valuations come down to three pillars: Growth, return on equity (ROE) and the cost of equity. A solid valuation framework can be built around them.
The real difficulty lies in assessing sustainability: How durable the ROE is; how long the growth runway lasts and how strong the company’s ability is to enter adjacencies and unlock new growth vectors. There are no shortcuts; this requires deep, detailed work.
Many of today’s IPOs are unprofitable and represent business models still scaling up. They are not yet stable, either in cash flows or in growth patterns. Food-delivery platforms are a good example — they expanded into adjacencies and created entirely new growth curves. These are dynamic, evolving businesses, and valuing them requires careful judgement rather than simplistic metrics.
How should a retail investor allocate across market caps and manage risk?
Gubbi: For retail investors, the most effective risk-management tool is disciplined asset allocation combined with systematic rebalancing. The key is to stick to your allocation plan regardless of market noise. Take smallcaps, for instance. After their strong run from 2020 to 2024, many investors saw their smallcap exposure swell far beyond what was originally intended. The right approach at that point was to book profits and revert to the planned allocation.
Of course, this is easier said than done. If I had advised anyone in mid-2024 to sell smallcaps, I would have been the most unpopular person in the room—which is why investing is often more about behaviour than intellect. Making those uncomfortable decisions is essential. At an asset-manager level, valuation is the core risk-management tool. Because the future is inherently uncertain, maintaining a margin of safety is critical; otherwise, we expose ourselves to avoidable risks. People love to discuss returns but investing is fundamentally about managing risk. Returns without the context of risk are meaningless.
Shyamsunder: To add to that, the recent underperformance of mid and smallcaps doesn’t violate any rule—there’s no mandate that they must outperform large caps every year. The real task is to spread risk effectively. Many new investors also struggle with understanding their own risk appetite. Everyone believes they are high-risk takers — until they face a sharp drawdown. It’s only then that you truly discover your tolerance levels. So it’s crucial for investors to honestly assess their risk appetite, understand how much volatility they can stomach, and size their portfolios accordingly.
