Allocations Shift: Where to invest in an ageing bull market, Nuvama answers

Domestic brokerage house Nuvama Institutional Equities caution that India’s post-COVID bull run, now over five years old, is entering an advanced stage. With valuations steep and revenue growth stagnating, the brokerage suggests investors pivot from speculative themes toward margin-driven sectors like metals, telecom, cement, consumer, and private banks. They argue that rolling sector churn is giving way to a slower, more selective investment environment requiring precise stock picks.

The brokerage notes that “every bull or bear market, typically, expires in about five years”—and in India’s case, that period was reached in March 2025 with the end of the post-COVID rebound. While headwinds like high valuations and flattened earnings now limit upside, ample liquidity may cushion downside risks, although catalysts to propel further growth are scarce.

Nuvama describes the 2020s rally as driven by “rolling churn” across sectors—IT and metals (FY21–22), FMCG (FY23), cyclicals (FY24), and BFSI (FY25)—rather than a decade-long theme like capex (2000s) or consumption (2010s). This pattern reflected lightning-fast profit bursts, often from restructuring gains and policy spurts, rather than sustainable growth. Nuvama notes, “Sectoral spotlight was thus an outcome of unlocking rather than underlying demand…short, but sharp profit swings.”

Earnings Plateau, Valuations at a Peak

The brokerage also warns that India Inc's profits, which soared ahead of revenue during early recovery, have now converged with weak topline growth in FY25. While corporate balance sheets remain strong, revenue stagnation and ongoing global uncertainty threaten future earnings momentum. Shockingly, the median BSE-500 company trades at 38x PE, despite consensus seeing only 9 percent EPS growth . With emerging market multiples and interest rates already priced at historical highs, further gains seem unlikely without fresh triggers.

Looking forward, Nuvama anticipates that margin recovery, rather than revenue explosions, will underpin the next market leg. “Margin mean reversion shall drive alpha,” the analysts write. With stabilising valuations and fiscal/monetary policy offering only mild support, they recommend upgrading metals to ‘neutral’—citing safeguard duties as a cushion—and overweighting telecom, cement, consumer, and private banks. Such sectors, they argue, offer strong free cash flow and margin discipline, essential in a maturing bull phase.

Emphasis on Selectivity amid Rotation Fatigue

In the current market, with valuations stretched across board and sector leadership blurred, Nuvama urges a bottom-up approach focusing on lagging yet recovering sectors. Companies with margin-runway upside amid stable liquidity may outperform, particularly as rolling cycles shorten and the pace of sector shifts increases. Investors are encouraged to identify names where operating leverage aligns with modest macro tailwinds.

Risks and Potential Catalysts

Yet, Nuvama highlights risks to this cautious stance. Any unexpected global slowdown, geopolitical flare-ups, or commodity price shocks could derail expectations. Conversely, a weaker US dollar may trigger a surge of emerging market inflows, offering upside surprises for args like India.

Overall, as India’s bull market surpasses the five-year mark, Nuvama Equities signals a transition from broad thematic rallying to a nuanced, margin-oriented phase. With valuations high, growth muted, and liquidity holding the fort, gains are likely to depend on sectoral selectivity and improving profitability rather than headline momentum. For investors, the strategic focus must now shift to disciplined stock-picking, targeting companies with untapped margin potential in sectors like metals, telecom, and private banks—while staying alert to macro risks and external triggers for renewed rallying.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.