Indian market turns bottom-up; manufacturing, banks offer opportunities: Jefferies’ Nandurkar

India’s equity market has become an extremely bottom-up story, with the new manufacturing revolution creating opportunities in defence, space and electric-related manufacturing. Large-cap banks are also looking attractive, according to Mahesh Nandurkar, Head of India Research and India Equity Strategist at Jefferies.

While broader markets have remained largely flat over the last couple of years, several individual themes and stocks have delivered strong returns. Nandurkar believes investors should focus on companies with strong management and business models that can deliver on earnings expectations.

“If the EPS growth expectations are met or beaten, then those stocks continue to deliver high returns despite the valuations,” he said.

However, he cautioned that some small and mid-cap companies may fail to meet investor expectations. Beyond manufacturing, he highlighted power utilities, real estate and large-cap banks as attractive opportunities.

Nandurkar believes the banking sector could perform well as investor expectations remain low. Management transition issues affecting some banks need to be resolved, but established processes could help these institutions deliver strong returns.

“The expectations from the market and from the investors at the current point in time is very low,” he said.

The key challenge for Indian equities, according to Nandurkar, is rising equity paper supply through initial public offerings (IPOs), follow-on offerings, qualified institutional placements (QIPs), private equity exits and promoter block deals. This could limit broader market performance.

Foreign portfolio investor sentiment has improved over the past couple of months, while Foreign Currency Non-Resident (FCNR) deposits could help stabilise the currency. Even if crude oil prices rise to $95–100 per barrel, India’s current account deficit should remain well within 2% of gross domestic product (GDP).

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However, rising oil prices could act as a relative headwind for Indian equities. Despite geopolitical concerns, corporate performance in the March and June quarters has remained resilient, while valuations have become more interesting.

Nandurkar believes the market could see much bigger upside once oil prices stabilise.

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