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Mr. Srinivas Rao Ravuri, Chief Investment Officer, Bajaj Allianz Life
How do you see the Indian equity markets shaping up over thenext 12–18 months?
The Nifty50 is only marginally positive on a one-year basis and has been among theweaker-performing equity markets globally during this period. This trend has been drivenby subdued earnings in FY25, and FY26 is also shaping up to be a relatively lacklustreyear, with expectations of only single-digit earnings growth.
That said, the outlook for FY27 and beyond appears more encouraging. We believe thefull impact of the monetary and fiscal measures announced in recent months will begin toreflect positively on corporate earnings. Ultimately, equity markets are driven by earningsand, importantly, they are forward-looking in nature.
Against this backdrop, we see a reasonably constructive outlook for equity returns overthe next 12–18 months. At the same time, we remain mindful of potential challenges,including the recent escalation in U.S. tariff-related developments. We will also bewatching retail flows closely, as they have been the key source of market resiliencedespite weak earnings. For now, flows continue to be strong despite subpar returns in thelast 12 months, but investor conviction could be tested if this correction phase extends for longer.
Many investors found the Q1 earnings season below expectations,with signs of broad-based growth missing. Do you think earningsrecovery will come in Q2 or Q3 onwards?
Q1 FY26 earnings were tepid but largely in line with expectations. Large caps deliveredhigh single-digit PAT growth, whereas midcaps registered 20%+ growth, driven by astrong rebound in energy companies’ earnings. Small caps reported a year-on-yeardecline due to weak performance from lenders in this segment. What concerned us morewas the subdued outlook in management commentaries, with very little optimism onfuture growth.
We expect Q2 earnings to remain weak, driven by multiple factors:
• Postponement of demand ahead of the recently announced GST rate cuts
• The impact of higher U.S. tariffs
• Softer performance from banks, as the full effect of the June repo rate cut leads tofurther margin compression
However, from Q3 onwards, the outlook turns far more constructive. We anticipate strongmomentum beginning October, particularly in segments expected to benefit the most fromGST reductions—such as passenger vehicles, two-wheelers, and air conditioners. Banks,too, should see margin support from the phased CRR cut starting in September. Afavourable resolution of the tariff issue would be an additional positive catalyst.
In this context, we view Q2 as the likely bottoming-out quarter for corporate earnings, witha strong revival expected from Q3 onwards.
Which sectors do you believe will lead the next leg of marketgrowth, and what’s driving your conviction in them?
We have been constructive on the consumption theme for some time, and the recentannouncement of GST cuts further strengthens that view. The scale of the cuts ismeaningful—around Rs 1.8 trillion—and the resulting price reductions for certain productscould be significant.
In addition, consumer affordability has improved meaningfully, supported first by tax reliefin the Union Budget and then by substantial interest rate cuts from the RBI. Takentogether, this creates almost a “Goldilocks” scenario for consumption-driven companies,paving the way for broad-based growth acceleration across the sector. That said, weremain mindful of valuations and will continue to assess opportunities on a case-by-casebasis.
Pharma is another sector we are positive on, despite headwinds from potential U.S.tariffs. Over the years, Indian pharma companies have built scale and cost advantagesthat are not easily replicable. The sector has seen a time correction over the past 12months, despite the earnings boost from a blockbuster drug going off patent in the U.S.Additionally, some Indian companies could be key beneficiaries of the fast-growingweight-loss drug market.
Are there any valuation trends or signals in the current market thatinvestors should be mindful of?
Valuations for large-cap companies remain reasonable, with the Nifty50 trading at about21 times one-year forward earnings—only a modest premium to long-term averages. Incontrast, midcap and small-cap valuations are relatively elevated, supported byexpectations of stronger earnings growth compared to large caps over the next two tothree years.
Sector-wise, IT valuations have corrected meaningfully, with some large caps now tradingat multi-year lows. However, this correction has coincided with an uncertain sectoroutlook, which explains why valuations are not reverting to mean quickly.
If you had Rs 10 lakh to invest in the market right now, how wouldyou spread it across gold/silver, equities, and debt?
The answer to this question really depends on an individual’s financial situation and riskappetite. Such decisions are best guided by financial advisors who can assess aninvestor’s overall profile.
Returns from different asset classes tend to be cyclical, making optimal asset allocationcrucial for delivering superior returns over economic cycles. At this juncture, betweenfixed income and equities, we believe equities offer a more favourable outlook. In fixedincome, much of the benefit from the rate-cutting cycle already appears to be priced in,whereas equities present a more constructive outlook over the next 12–24 months.
Which sectors do you think are best placed at the moment for thenext 1–2 years?
As discussed earlier, among the cohorts of consumption, financials, manufacturing,commodities, and export-oriented sectors, the outlook over the next one to two yearsappears most favourable for consumption.
Commodities and export-oriented sectors face headwinds from the uncertain globaldemand environment created by U.S. tariff actions. However, within the export-orientedcohort, we remain positive on pharma companies, as explained above. Manufacturing may not receive the same incremental policy support it benefited from in recent years. Infinancials, while valuations—particularly for banks—are fairly reasonable, growth hasbeen constrained by low nominal GDP growth, and the recent phase of margincompression following repo rate cuts has further weighed on profitability.
In this backdrop, consumption companies stand out with the most promising growthoutlook. That said, valuations in certain pockets are stretched, and investors shouldremain mindful of this while evaluating opportunities.
Lastly, what’s the one contrarian idea you’d back for the next 12months?
Quick service restaurant (QSR) companies have delivered lacklustre growth over the pastsix to eight quarters, resulting in sharp underperformance of the sector. We do haveexposure to some of these names and are continuing to hold them, as we see a fairchance of a turnaround in the next 12–18 months.
The QSR segment in India is still at a nascent stage compared to other markets, anddespite the recent phase of subdued growth, we believe these companies have a longrunway ahead. From current levels, they hold the potential to evolve into strong long-termcompounders.
Above interview is published on “The Economic Times” online news portal, for more information visit: – https://m.economictimes.com/markets/stocks/news/fund-manager-talk-srinivas-rao-ravuri-backs-beaten-down-qsr-stocks-for-a-surprise-comeback/articleshow/123481544.cms
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