Growth Still Worth Paying For: Amish Shah's Market Insights

Indian equity valuations are high, but growth visibility can justify premiums. Amish Shah, market strategist, advises focusing on sectors with clear earnings visibility. He is cautious on capex, except for defence and shipbuilding, and negative on cement. Quick commerce is a promising sector, while e-commerce is still battling competition. Shah is cautiously optimistic on small and midcaps, particularly in building materials, consumer durables, travel and tourism, and auto components. In pharma, he is negative on generic players exposed to the US market, but positive on hospitals as a domestic growth story.

Indian equity valuations are currently at high levels, prompting investors to question the remaining value in the market. Market strategist Amish Shah, in a recent conversation with ET Now, highlighted the importance of growth visibility in justifying premiums for companies [1]. While valuations are frothy, sectors with clear earnings visibility can still command a premium.

Shah advises caution in sectors such as cement and e-commerce, where growth visibility is less clear. He remains bullish on defence, shipbuilding, and power transformers due to their high growth potential. However, he warns that overall capex growth is expected to be lower than market expectations, with a structural growth rate of around 11% [1].

In the consumption sector, Shah sees promise in quick commerce, where profitability has improved after easing competitive pressures. In contrast, e-commerce continues to face challenges from rising competition and earnings downgrades, particularly in areas like beauty [1].

Shah is cautiously optimistic about small and midcaps, noting their recent underperformance. He identifies building materials, consumer durables, travel and tourism, and auto components as potential bright spots within the segment [1]. However, he acknowledges that the segment will still lag behind largecaps.

In the pharma sector, Shah expresses caution about generic players exposed to the US market. He is more positive on hospitals as a domestic growth story, citing the increasing demand driven by rising GDP per capita and medical insurance penetration [1].

Rajiv Batra, Head of Asia & Co-Head of Global Emerging Markets Equity Strategy at JPMorgan, also emphasizes the importance of growth and policy reforms in attracting foreign investors. He suggests taking profit off the table in pharma due to US generic concerns and underwhelming earnings [2]. Batra remains positive on financials and is monitoring the Jackson Hole Symposium for its impact on rate cuts.

In conclusion, while Indian equity valuations are high, sectors with clear earnings visibility and growth potential can still justify premiums. Investors should focus on defence, shipbuilding, power transformers, quick commerce, and hospitals, while exercising caution in sectors like cement and e-commerce.

References:
[1] https://economictimes.indiatimes.com/markets/stocks/news/valuations-frothy-but-growth-still-worth-paying-for-amish-shah/articleshow/123539338.cms
[2] https://m.economictimes.com/markets/expert-view/right-time-to-take-profit-off-the-table-in-pharma-defence-a-structural-buy-rajiv-batra/articleshow/123450141.cms