'The market is clearly far more attractive today'

Summary: After a prolonged phase of correction, markets are beginning to show signs of improved attractiveness. This conversation with Nippon India Mutual Fund’s Sailesh Raj Bhan explores how changing valuations are reshaping opportunities across sectors.

Summary: After a prolonged phase of correction, markets are beginning to show signs of improved attractiveness. This conversation with Nippon India Mutual Fund’s Sailesh Raj Bhan explores how changing valuations are reshaping opportunities across sectors. Indian markets have witnessed a meaningful correction over the past 18 months, not just in price, but in time as well. But for Sailesh Raj Bhan, President and CIO – Equity Investments at Nippon India Mutual Fund, this correction has done more good than harm. Valuations have moderated, sentiment has turned cautious and enough negative news has been priced in, making the market far more attractive than it was two years ago. In his view, this is no longer a market where everything is expensive. Bhan brings over 27 years of experience in Indian equity markets, with more than 19 of those at Nippon Life India Asset Management. An MBA in Finance and a CFA by qualification, he manages funds such as the Nippon India Large Cap Fund, Nippon India Multi Cap Fund and Nippon India Pharma Fund, with the large- and multi-cap funds earning five-star ratings from Value Research. In this interview, Bhan also shares his views on the outlook for IT services amid the AI disruption narrative, the shifting dynamics between public and private sector banks, the ‘China+1’ opportunity in pharma and his framework for investing in high-P/E stocks. Over the last 18 months, markets have consolidated. While there hasn’t been a sharp correction, valuations have moderated, from around 19x to about 21x now after the rebound. Do you think the market is fairly valued, or is there room for further correction? And which pockets look overvalued or undervalued? There has been a meaningful time correction in the market, and in several pockets, a price correction as well. So it’s really been a combination of time and price corrections that have played out. Compared to where we were two years ago, the market is clearly far more attractive today. Even within this period, a lot of things have evolved, including policy support such as GST-related measures, income tax changes and an improving earnings outlook. Before the recent geopolitical disruptions, we were looking at early double-digit earnings growth. If you look at the market at around 18-19x earnings, and if the economy can deliver 13-15 per cent earnings growth over a sustained 5-10-15-year period, these are fairly attractive levels. Importantly, there has been enough derating and a fair bit of negative news, whether it is geopolitical tensions, energy-related concerns or FII selling. In a way, that is healthy because it creates better entry points. Overall, valuations today look reasonably sensible, and enough opportunities are emerging. On sectors, what is interesting is that you are now getting high-quality, well-established companies that have not delivered returns for 5-7 years at reasonable valuations. These include parts of private sector banks, consumer companies and NBFCs. These are businesses with strong franchises unlikely to be disrupted in the near term. Structural shifts in such sectors take 10-20 years, not three to five years. However, due to heavy FII ownership, they have