Indian equities could deliver reasonably strong returns over the next three to five years, supported by improving earnings growth, resilient economic fundamentals and reasonable valuations, Rajesh Kothari, Managing Director of AlfAccurate Advisors, said in an interview with CNBC-TV18.
“It is time to go all in. This is the time to go all in on equities as an asset class,” Kothari said, arguing that investors should consider opportunities across large-, mid- and small-cap stocks.
He noted that market indices have delivered limited returns over the past two years, with mid-cap and small-cap stocks also struggling to generate meaningful gains over the period.
Despite concerns over higher crude oil prices and interest rates, Kothari said India’s economic indicators point to stronger underlying fundamentals than the prevailing macroeconomic sentiment suggests.
Strong credit growth supports economic resilience
Kothari cited non-food credit growth of 17-18%, industrial credit growth of 20% and personal loan book growth of 16% as indicators of economic strength. He said industrial credit growth had reached its highest level since 2011.
Consumption, government capital expenditure and a resurgence in exports are also supporting the economy, he said.
Kothari added that earnings growth is improving and becoming broader-based. He said market valuations are reasonable, with the market trading below its 10-year average price-to-earnings ratio.
FII selling is more company-specific than country-specific
Kothari said foreign institutional investors (FIIs) continue to buy Indian equities despite concerns over their net selling activity. He urged investors to examine gross purchases and sales rather than focus only on net flows, which remain negative.
According to him, foreign investors are reducing their exposure to companies that have failed to deliver in line with expectations, in some cases after holding them for many years. Their selling should not necessarily be interpreted as a negative view of India, he said.
“I think FIIs are also buying India. It is not that FIIs are negative on India. The issue is more company-specific than country-specific,” Kothari said, adding that gross FII purchases had remained strong, particularly over the past 12 months.
EMS, aerospace and platform businesses among preferred sectors
Kothari said investment opportunities have expanded beyond traditional sectors such as banking, information technology and consumer businesses. He identified electronics manufacturing services (EMS), aerospace, contract development and manufacturing organisations (CDMOs), and auto ancillaries as areas with significant growth potential.
In EMS, he pointed to government support through the production-linked incentive (PLI) scheme and the increased ability of Indian companies to scale up. The pool of potential investment candidates has also widened, with more than 10 companies operating across the direct and indirect EMS space, he said.
Banking and financial services remain another area of interest. Kothari cited credit growth of around 18%, strong asset quality and controlled credit costs as factors that could support returns. He also expects the net interest margin pressures that affected the sector last year to ease.
Speciality chemicals are gaining traction as India’s export competitiveness improves, Kothari said, identifying Europe as a significant opportunity for Indian companies. Consumer discretionary businesses also remain among his preferred areas.
Stock selection remains key as investment opportunities widen
While more sectors are opening up, Kothari stressed that investors need to be selective about the companies they own.
He said no large-cap company had delivered 20% growth every year over the past five years. Among mid-cap and small-cap companies, only around 8% had achieved that level of consistent growth, he said.
Kothari also highlighted platform businesses, saying the range of platform-based sectors has expanded significantly. Many companies in this space have become debt-free, while the ability of private equity investors to continue funding cash-burning businesses has diminished.
These changes could help established market leaders sustain their positions for longer and reduce the threat of disruption compared with five years ago, he said.
Kothari identified opportunities in travel platforms, as well as media, advertising and mobile technology advertising businesses. Some Indian companies in these segments have built substantial global operations, supported by mergers and acquisitions.
AlfAccurate yet to decide on IPO participation
On upcoming initial public offerings (IPOs), including Jio’s, Kothari said AlfAccurate is evaluating opportunities but has not yet decided whether to participate.
He said India’s mobile services industry has among the lowest average revenue per user (ARPU) levels, leaving room for improvement over the next two to three years. ARPU could rise by around 4-5% annually, he said.
A greater focus on value-added products, solutions and services could also help telecom companies improve margins.
Kothari said the firm is evaluating several companies, including those preparing to list, but has yet to finalise its participation in the IPOs.
Watch accompanying video for full conversation.
‘Time to go all in on equities’: Rajesh Kothari sees strong returns over 3-5 years