Large-cap stocks could be ready for a comeback, says Abakkus Asset Management

Large-cap stocks are poised for a recovery as foreign institutional investor (FII) outflows moderate and corporate earnings remain resilient, while manufacturing, financials and premium consumption remain India's strongest long-term investment themes, according to Abakkus Asset Management.

In an interview with CNBC-TV18, Sanjay Doshi, Head of Investment and Research at Abakkus Asset Management, and Pratish Krishnan, Senior Fund Manager – Equity, said the fund house remains constructive on Indian equities despite global uncertainties, citing strong economic fundamentals, structural reforms and attractive long-term growth opportunities.

Krishnan said the large-cap universe has become increasingly attractive after underperforming the broader market over the past two years, with improving foreign investor sentiment expected to support valuations.

"If you look at the entire large-cap space broadly, especially over the last two years, we've seen that the broader indices have been broadly flat," he said. "More than half of the companies in the Nifty 100 continue to compound earnings at over 10%–15%."

He added that Abakkus is looking for companies capable of delivering earnings growth of more than 14% over the next two to three years while trading at reasonable valuations.

"This space should benefit from both earnings compounding and some valuation re-rating," Krishnan said, adding that the worst of the FII outflows appears to be behind the market.

Doshi said Abakkus remains optimistic on India's long-term economic prospects despite concerns over geopolitical tensions and crude oil prices.

"We remain fairly constructive on the India story," he said.

According to Doshi, India's economy continues to offer a compelling structural growth opportunity, supported by around 7% real

GDP

growth and nominal GDP growth of 10%–11%. He expects mid- and small-cap companies to continue delivering stronger earnings growth, with the potential to generate 13%–18% growth over the next three to four years.

Doshi also believes the recent reassessment of global technology stocks could redirect investor flows towards markets with stronger structural growth prospects such as India.

"The tech trade, which was sucking in a lot of capital, has now undergone a revaluation, and that provides a great opportunity for a more diversified and structurally strong market like India," he said.

Abakkus continues to favour sectors linked to India's structural economic transformation, particularly financial services, manufacturing and premium consumption.

Doshi said the financialisation of household savings remains one of the country's biggest long-term investment opportunities, extending beyond banks to asset management companies, wealth managers, exchanges and other capital market intermediaries.

"If we are going towards an $8 trillion to $10 trillion economy, this is a huge space that is going to emerge," he said.

Krishnan added that the opportunity spans banks, non-banking financial companies (NBFCs), wealth management firms and capital market-related businesses.

"The financial space spans across banks, NBFCs, and the entire spectrum of wealth management and capital market-related companies, all of which are far more structural," he said.

Abakkus also expects India's manufacturing sector to play a larger role in the economy. Doshi said manufacturing currently accounts for around 14%–15% of GDP but could eventually rise to 23%–25%, creating opportunities across sectors including auto components, chemicals and pharmaceuticals. He added that government production-linked incentive (PLI) schemes and capital subsidies are also supporting the development of India's semiconductor ecosystem, opening up opportunities across the manufacturing value chain.

The fund house also remains positive on the long-term premium consumption theme, with rising incomes expected to support higher discretionary spending.

On portfolio strategy, Doshi said Abakkus follows a disciplined investment framework that evaluates management quality, earnings quality, structural trends, timing and valuations before making investment decisions.

"We are very focused on the value that we pay upfront because, from a long-term compounding perspective, buying at the wrong price is not going to serve you well," he said.

Doshi added that beaten-down stocks become attractive only when there is clear visibility of an earnings recovery, warning that companies facing prolonged structural challenges can easily become value traps.