Nifty valuations have corrected to around 15 times estimated earnings for the 2027-28 (FY28), creating distinct pockets of growth in sectors like defense, solar, and contract manufacturing, according to Gurmeet Chadha, Managing Partner and Chief Investment Officer at Complete Circle.
The benchmark index had run ahead of itself in September 2024, trading at 24-25 times earnings. A subsequent correction has brought the multiple down to 15-15.5 times, assuming earnings per share (EPS) of 1,410 for 2027-28 (FY28). Part of the earlier underperformance was self-inflicted, as large corporates missed the artificial intelligence (AI) industrial revolution, keeping research and development (R&D) budgets below 1% of revenue.
Investors must now divide the market into two segments and focus on the price-to-earnings-to-growth (PEG) ratio. Small and mid-cap earnings growth currently justifies multiples above 20. In contrast, sectors such as information technology (IT) services and fast-moving consumer goods (FMCG) are posting single-digit EPS growth. “They may still optically look better, but there is no growth,” Chadha noted.
Promoters investing heavily in the future offer the best opportunities. Dixon Technologies management expects revenue to surge from ₹50,000 crore to ₹2 lakh crore over the next five to six years, with the mobile segment alone contributing ₹1 lakh crore. Defense companies are projecting revenue to double or triple in the next three years. In the solar space, despite a recent correction linked to an acquisition, top-line revenue is projected to reach ₹35,000 crore to ₹40,000 crore, generating earnings before interest, taxes, depreciation, and amortisation (EBITDA) of ₹8,000 crore—roughly three times current levels.
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Lower taxes and phased reforms can fix market disconnect, says Complete Circle’s Gurmeet Chadha
Contract development and manufacturing organisations (CDMOs) such as Laurus Labs, Sai Life Sciences, Shilpa Medicare, and Neuland Laboratories are executing more capital expenditure now than in the past two decades. The textile sector is also poised for a shift by next spring, as competing plants in Pakistan and Bangladesh struggle to survive with gas prices at $100. Furthermore, the chemical sector presents opportunities in amines, zinc, and fluorination, aided by the Chinese yuan appreciating 20% against the Indian rupee.
“When there is pain is when you get good prices,” Chadha said, advising investors to maintain a strong heart through market volatility.
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