1 week ago
Madhu Nair Sees Attractive Indian Equity Entry Point for Investors
Madhu Nair says many Indian shares are currently priced more reasonably than they were in the past.
He thinks this could be a good time to invest if people can wait about five years.
Company profits grew strongly in the first quarter, but growth may slow later in the year.
He says India may be partly protected from global conflicts because much company income comes from people buying things inside the country.
Some investors prefer passive large-company funds, while others choose actively managed mid- and small-company funds.
Nair believes both large and smaller companies can offer opportunities when chosen carefully.
Mutual funds are still adjusting to a new stock-market closing auction process.
He also expects monthly SIP investments to keep growing as more people learn about investing.
Madhu Nair says Indian equity valuations are comfortable, particularly among large-cap companies, with lower P/E and PEG ratios than historical averages.
He expects earnings growth of 12-15% year-on-year for the rest of the fiscal year after 20-25% growth in Q1FY27.
Nair believes investors with a five-year horizon may find current valuations attractive, while noting geopolitical risks linked to the West Asia conflict.
Active large-cap funds face competition from passive strategies, although Nair says skilled managers can still generate consistent alpha.
He expects SIP inflows to reach Rs 40,000 crore monthly within about two years and eventually Rs 1 lakh crore a month.
- Who
- Madhu Nair, CEO of Baroda BNP Paribas Mutual Fund.
- What
- He discussed Indian equity valuations, fund categories, the closing auction session, foreign investor prospects, and SIP growth.
- Where
- India’s equity and mutual fund markets.
- When
- The interview refers to Q1FY27, the rest of the current fiscal year, and the next five years; the closing auction had been introduced only a few days earlier.
- Why
- Nair believes lower valuations, domestic consumption, broader investor participation, and increasing financial awareness could support future investment returns and SIP growth.
Passive and Smaller-Cap Preference
Active Large-Cap and Broader Participation
Large-cap fund strategy
Passive and Smaller-Cap Preference
Some distributors believe consistently generating alpha in active large-cap schemes is difficult, so they advise passive large-cap exposure.
Active Large-Cap and Broader Participation
Nair says fund managers with appropriate stock selection and conviction can still generate consistent alpha in active large-cap schemes.
Mid- and small-cap opportunities
Passive and Smaller-Cap Preference
Mid- and small-cap funds are viewed as riskier, particularly because their valuations have been elevated, even though they may offer greater long-term alpha.
Active Large-Cap and Broader Participation
Nair says mid- and small-cap companies can grow faster in a developing economy and notes that their valuations have moderated; he also says returns have been better in these categories.
Closing auction participation
Passive and Smaller-Cap Preference
Initial structural and operational issues, including spread capture while the cash market is closed and derivatives trading remains active, are reducing liquidity and mutual fund participation.
Active Large-Cap and Broader Participation
Nair views the closing auction as a global practice that improves price discovery and expects mutual fund participation to increase as firms adapt.
Key facts
- Valuations
- Nair says P/E and PEG ratios are below historical averages, especially for large-cap stocks.
- Q1FY27 earnings growth
- BSE 500 companies recorded 20-25% year-on-year earnings growth in Q1FY27, according to Nair.
- Expected earnings growth
- Growth may average 12-15% year-on-year for the rest of the fiscal year.
- Domestic consumption
- Around 75% of BSE 500 companies’ earnings are derived from domestic consumption, Nair says.
- SIP forecast
- Nair expects net monthly SIP flows to reach Rs 40,000 crore in about two years.
- Long-term SIP target
- He expects monthly SIP flows eventually to scale to Rs 1 lakh crore within his working lifetime.
Sources
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