Nifty may underperform broader market as half its constituents lag GDP growth: Sunil Singhania

India’s benchmark Nifty index could underperform the broader market over time, as nearly half of its constituent companies may struggle to grow in line with the country’s gross domestic product (GDP), according to Sunil Singhania, Founder of Abakkus Asset Manager.

Speaking to CNBC-TV18, Singhania outlined an impending shift in market leadership as India transitions from a $4 trillion to an $8 trillion economy. He said traditional heavyweights in sectors such as fast-moving consumer goods (FMCG), oil and gas, and information technology (IT) face structural limitations to growth.

“If you actually look at the composition of Nifty, 40-50% of the companies will not even grow in line with the GDP, not because something is wrong with them, but the sector is like that,” Singhania said.

He added that IT services companies may find it difficult to grow beyond 2% to 3% operationally, while the currency depreciation benefit that the sector enjoyed in the past is now reversing.

With the rupee moving towards the 94 mark against the US dollar, Singhania said currency-led growth would become increasingly challenging for IT companies. Instead, he expects the next phase of growth to emerge from opportunities beyond traditional banking and generic pharmaceuticals.

Within the financial services space, Singhania sees significant potential in capital market businesses. He expects India’s investor base to expand from around 13 crore currently to between 20 crore and 25 crore over time.

In healthcare, he favours hospitals, diagnostic centres and differentiated pharmaceutical companies capable of generating margins of 35% to 40%, rather than generic drugmakers operating at margins of 10% to 12%.

Singhania also pointed to the improving financial performance of several high price-to-earnings (P/E) platform companies, including Lenskart Solutions, Billionbrains Garage Ventures (Groww), FSN E-Commerce Ventures (Nykaa), Honasa Consumer and Shadowfax Technologies.

While acknowledging his firm’s value-conscious investment approach, he said these companies were showing improving fundamentals, supported by strong growth and positive unit economics.

“The growth is good… because the unit economics is positive. The delta on the EBITA is very, very high,” he said.

Why Singhania is bullish on microcaps

Beyond large- and mid-cap stocks, Singhania said Abakkus also remains active in the microcap space, which he likened to venture capital investing, but with the added advantages of liquidity and regulatory oversight.

“This is venture investment with some liquidity because they are listed. And the good thing is once you are listed, there is some compliance,” Singhania said.

He cautioned that microcap investments carry risks, particularly around disclosure standards and organisational depth. However, he noted that the segment offers opportunities to invest in passionate entrepreneurs building businesses in differentiated niches and driving rapid growth.

Nifty may lag as India’s next generation of market leaders takes shape: Sunil Singhania