A Pricey Market Demands a Stock-Picker’s Approach
Mumbai – The Indian stock market, hovering near all-time highs, presents a classic dilemma for investors: ride the wave of optimism or tread with caution? According to Venkatesh Balasubramaniam, Managing Director and Co-Head of Equity Broking at JM Financial Institutional Securities, the answer lies in selective bets, as the broader market appears stretched with valuations outpacing near-term earnings growth.
Balasubramaniam paints a picture of a “pricey” market where record-breaking indices aren’t fully supported by underlying corporate performance. He points out that the expected earnings per share (EPS) growth for the benchmark Nifty 50 index is modest, likely to be in the low double-digits. This disconnect between soaring stock prices and moderate earnings growth suggests investors are paying a premium—a scenario that calls for prudence.
“When valuations are rich and the overall earnings momentum is not spectacular, it’s no longer a market where you can buy anything and expect it to go up,” Balasubramaniam explained. “This is a stock-picker’s market. The key is to look for pockets of value and specific sectors where the growth story is more compelling and domestically driven.”
So, where can investors find value in this complex environment? Balasubramaniam highlighted two sectors that are flashing green on JM Financial‘s radar: Automobiles and Hospitality.
Spotlight on Opportunity: The Automobile Sector
After navigating supply chain disruptions and a cyclical slowdown, the Indian auto sector is back in the fast lane. Balasubramaniam believes the sector is poised for a strong performance, driven by a confluence of positive factors.
Key growth drivers for the auto industry include:
* Robust Demand Cycle: Strong consumer interest is evident, particularly in the passenger vehicle and two-wheeler segments.
* The Premiumisation Trend: A consumer shift towards higher-end SUVs is directly boosting margins for manufacturers.
* Rural Recovery: A rebound in rural demand, combined with the upcoming festive season, is expected to provide a significant tailwind for two-wheeler sales.
* Favourable Costs: Softening commodity prices and the resolution of the semiconductor shortage are creating a sweet spot for improved profitability.
Hospitality Checks In as a High-Growth Play
The other sector offering a compelling investment thesis is hospitality. The post-pandemic “revenge travel” phenomenon has transformed into a structural shift in consumer spending, with a greater emphasis on experiences.
Balasubramaniam pointed to several catalysts fueling the hotel industry:
* Surging Travel Demand: Business travel is back, corporate events are in full swing, and leisure travel continues to boom.
* Major National Events: High-profile events like the G20 summit and the Cricket World Cup have created a surge in demand.
* Improved Profitability: This increased demand is allowing hotel chains to command higher average room rates (ARRs) and improve occupancy levels, strengthening the industry’s prospects after years of underperformance.
Investor Takeaway: A Sector-Specific Strategy is Key
The core message from JM Financial‘s analysis is clear: while the headline indices may appear overvalued, deep opportunities exist for the discerning investor. The optimal investment strategy should pivot from a broad market approach to a focused, sector-specific one.
For those navigating today’s market, Balasubramaniam’s advice underscores the importance of looking beyond macro-level noise. While the broader market may consolidate due to valuation concerns, sectors like autos and hospitality—powered by strong domestic consumption and cyclical recovery—offer a promising avenue for growth. In a pricey market, finding these well-placed opportunities is the key to outperformance.
