“I think quality has been beaten down and cash flows have been beaten down. Markets have been chasing growth, irrespective of or with a disregard for cash flows,” Murarka said. He added that “the value of a franchise or any business lies in cash flows,” arguing that companies generating consistent cash should regain favour after being ignored for the past 12 to 18 months.
Murarka believes this shift is already visible, with investors rotating out of sectors that have delivered strong returns over the past several years. He noted that industrials and defence have been among the market’s best performers, but valuations have become stretched while earnings have started disappointing. In contrast, several quality businesses are trading well below their long-term average valuations despite continuing to execute well.
One of the biggest beneficiaries of this rotation, according to Murarka, could be the IT sector. He believes fears that artificial intelligence (AI) would disrupt the business models of IT services companies have been overdone. Instead, AI is likely to create more opportunities for the sector as global companies increasingly require help implementing the technology.
“AI is a tailwind for services companies because their TAM will expand significantly,” he said. “Global clients… cannot adopt and implement AI on their own.” Murarka added that the world’s largest AI model developers launching their own services businesses only reinforces the need for IT services rather than replacing them.
TAM is Total Addressable Market
He acknowledged that earnings growth in IT remains muted because global clients have held back discretionary spending amid macroeconomic uncertainty. However, he believes that demand has only been deferred, not destroyed. After nearly four years of restrained technology spending, Murarka expects clients to gradually resume investments over the next two to four quarters, making current valuations attractive for investors with a three-to-five-year horizon.
Murarka also remains constructive on private sector banks despite the strong earnings reported by state-owned lenders. While public sector undertaking (PSU) banks have delivered healthy loan and profit growth, he believes their returns are still insufficient to create meaningful shareholder value over the medium term. Private banks, on the other hand, offer a combination of improving growth, strong asset quality and reasonable valuations while trading at a discount to the broader market.
Beyond financials and IT, he continues to favour consumer discretionary businesses that generate strong cash flows. Companies in segments such as beverages and branded consumption have faced pressure from inflation and higher input costs, but he believes those challenges are easing while demand remains resilient. As a result, many of these businesses are available at valuations last seen during previous market slowdowns.
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Murarka is equally optimistic about the long-term prospects of the automobile sector, particularly the electric vehicle ecosystem. He believes EV adoption has reached an inflection point in two-wheelers and is set to accelerate in passenger vehicles over the next few years. That makes both vehicle manufacturers and component makers with meaningful EV exposure attractive investment opportunities. He also highlighted India’s customer upgrade cycle, with more consumers moving from two-wheelers to entry-level cars, as another positive for the sector.
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