PGIM India Asset Management sees investment opportunities emerging in largecap and select smallcap stocks following the recent market correction. However, valuations in the midcap segment remain relatively stretched, according to Aniruddha Naha, Chief Investment Officer (CIO) at PGIM India Asset Management.
Naha said, “This correction that was that happened in the mid and small cap side was largely driven by excessive valuations in some of the stocks. Many of them were building in very high PEs into FY28, FY29, and hence from that perspective, some amount of correction is healthy.” He believes the correction was necessary and has created opportunities in certain pockets of the market.
Naha sees greater valuation comfort in largecaps, followed by select smallcaps. He expects limited downside in the largecap segment, while some smallcap stocks have become attractive following the correction. Midcap valuations, however, continue to remain somewhat expensive.
Within the broader market, Naha remains positive on capital goods, discretionary consumption, sugar, commodities and auto ancillary companies.
He sees opportunities in smaller capital goods companies, particularly those trading in the smallcap segment. Auto ancillary stocks are another area of interest, with several companies in the sector falling within the midcap and smallcap categories.
Naha believes select smaller auto ancillary companies could offer attractive investment opportunities as valuations become more reasonable.
Naha also expects the commodity cycle to improve, benefiting companies across the metals and energy sectors.
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Within metals, he is particularly interested in metal tube manufacturers and smaller steel companies. “We believe the commodity cycle generally should see a decent uptick, not just the metal side, but even the energy side.”
He added that opportunities could also emerge in select non-ferrous metal companies, although most of these businesses are concentrated in the largecap and midcap segments.
Metal tube companies may see earnings recovery over next 3–4 quarters
Naha expects metal tube manufacturers to see an improvement in earnings over the next three to four quarters, supported by recovering demand and a favourable base.
The sector has undergone a prolonged correction over the past two to three years, during which several companies faced pressure on margins.
However, recent quarterly results suggest that conditions may be starting to improve.
Naha believes stronger demand, along with the lower earnings base, could support a recovery in profitability for these companies.
While he remains uncertain about the scope for further expansion in price-to-earnings (P/E) multiples, he expects an improvement in pricing and earnings to support the sector’s performance.
For full interview, watch accompanying video
PGIM India’s Aniruddha Naha sees value in largecaps, select smallcaps; bullish on capital goods
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