Expert view: Strong India-focused stocks may become multibaggers in the next bull run, says SKG Investment's director

Expert view: Kush Gupta, Director at SKG Investment & Advisory, believes companies with robust business models linked to the Indian growth story at its root level can become multibaggers in the next bull cycle. In an interview with Mint, Gupta shared his views on small and mid-cap segments, Q4 earnings trends, and sectors he is positive about.

Edited excerpts:

What key triggers will shape the domestic market in the short and medium term?

The Indian stock market may remain volatile in the short term. The geopolitical factors are playing a bigger role than we had expected, mainly due to the tariff wars and the recent development on the India-Pakistan border.

A few key trigger points include the conclusion of US trade policies after a 90-day pause, a reduction in tariffs, and the US reaching an amicable solution with China and other major trading partners. We expect positivity-backed buying in the market.

Q4FY25 results are also in focus. Although India Inc. did not perform well in the preceding two quarters, expectations are high now, and market momentum is very much dependent on corporate earnings.

Specific sectors such as telecom, metals and finance are set to outperform.

We could see the sentiment shift due to their results, but the broader market is still shaky.

Another vital trigger is how the FPIS will behave in the coming one to two months.

Their selling has weighed on Indian equities recently, but we hope this trend will stabilise. As valuations moderate, we will see an easing of pressure and a floor being created for buying opportunities.

This will shape the domestic market in the short to medium term.

How do you view the current valuation levels in the small-cap and mid-cap segments?

Both mid- and small-cap stocks have seen a correction for the past six months. Their indices corrected almost 20 per cent at their lowest point before recovering, but they are still down 13 per cent from the 52-week high.

In the broader market, stocks with low liquidity were hit the hardest, with some correcting as much as 50 per cent due to selling pressure.

The current valuations provide stock-specific opportunities where companies with strong fundamentals have taken a hit purely because of market sentiment.

Companies with robust business models linked to the Indian growth story at its root level can become multibaggers in the next bull cycle.

I would not advise investors to dabble on a broader level and invest in small or mid-cap funds, as we face uncertain times due to tariff wars.

We may see a correction at the index level, and valuations may come down.

We should stick to stock-specific investments that offer certainty of growth and are not too dependent on the geopolitical crises the world is witnessing right now.

What should be our strategy for the mid and small-caps at this point? What key risks do you see for these segments in the current market environment?

The biggest risk in the small and mid-cap space is liquidity. In trying times, investors sell their most volatile assets and tend to stick with safer investments such as large-cap companies.

This selling pressure is too much to take for stocks that have low liquidity, and hence, prices correct 5-10 per cent easily on a bad day.

With an increase in volatility, we witness more such incidents, and four or five bad trading days can lead to a major correction in small and mid-cap companies.

Investors should be a little careful with their selection at this point. This is not the time to bet on large-cap stocks on a broad level.

Instead of investing in a large number of companies, one should pick and choose fewer companies and invest in those with strong growth.

A selling spree will always affect the broader market and take down sentiment-driven stocks rather than fundamentals.

So, to avoid accumulating huge losses, one should assume that sentiment is still not positive, there will be more loss-making bets, so choose your stocks wisely.

With increasing flows into small and mid-cap mutual funds, do you feel it’s becoming harder to generate alpha?

The last three to four years have seen a massive inflow into small and mid-cap mutual funds.

In fact, many AMCS (asset management companies) had stopped taking fresh applications for their funds because the inflows exceeded their expectations, and they were not prepared to deploy such large sums.

Small and mid-cap space is tricky, and while all fund managers would welcome funds, it can get difficult to maintain a good return and generate alpha consistently in this asset space.

The primary reason for this lack of investable options is the limited scope of continuing to invest in the same companies.

Indian markets still have a long way to go in terms of supplying good companies with strong fundamentals and corporate governance. While investors have started coming in strong, the supply side still needs to generate more conviction among the fund managers.

Hence, when the inflow increases and funds have to be deployed, AMCS has no choice but to relax its filtration processes while selecting stocks.

This, in turn, deteriorates the quality of investments to make way for quantity. This cycle works fine when the sentiment is positive and market participation is high, but when things turn around, the not-so-good companies drag down the overall portfolios.

SEBI is on a mission to make it easier for more companies to get listed on the stock exchanges while maintaining the financial criteria.

As the small and midcap space broadens, more opportunities will be created to deploy funds and maintain the quality of investments as per the desirable standards.

What sectors are you positive about for the medium term?

I am bullish on IT, healthcare, FMCG, infrastructure and renewables from a medium-term perspective. 

These emerging trends of 2025 will see significant growth; government policies, growing demand, and urbanisation will drive them. 

We have seen a rise in income in various parts of the country, which will drive consumption for fast-moving goods. 

The healthcare sector has seen a remarkable growth, with the market estimated to reach $320 billion by 2028, up from $180 billion in 2023. 

Additionally, the number of healthcare policies has been on the rise with increased focus on self-care and awareness. 

In the renewable sector, the Indian government has played a pivotal role by introducing several initiatives to promote capex, including the production-linked scheme (PLI) for solar modules and the National Hydrogen Mission. 

With favourable incentives, investing in this sector can yield attractive returns. 

The IT sector has always been a major contributor to India’s GDP, with an approximate share of 7.5 - 8 per cent. 

With the adoption of AI, cloud computing, and 5G, global demand for tech services will only increase, providing Indian companies with a great opportunity to cater to the demand. 

Modi government has focused relentlessly on infra growth since 2014, going forward I expect the trend to continue. 

With projects like Smart City Mission, demand for construction materials, urban housing, roads and real estate expansion will follow. 

This industry will continue the momentum in the next two to three years.

What is your assessment of the Q4 earnings so far? Which sectors have beaten expectations?

Q4 earnings so far have been mixed, with a few sectors standing out. Metals, telecom, healthcare, and some companies in the BFSI space have given positive surprises. 

With easing raw material costs and a safeguard duty on steel imports imposed by the government, steelmakers will post sharp profit growth. 

In the telecom space, Jio Platforms reported a strong growth of 25.7 per cent year-on-year with an increase in net profits due to the hike in telecom tariffs imposed in early July 2024. 

Bharti Airtel, the other major telecom player, is also expected to deliver good results, with most brokerages expecting a 27 per cent Yoy growth in adjusted PAT and 90 per cent YoY growth in adjusted PAT. 

The healthcare sector is anticipated to see 16-19 per cent revenue growth YoY, with the hospital industry seeing a rise in bed additions and revenue per bed. In the financial space, a steady net interest margin, robust asset quality, and improved balance sheets will see companies beating expectations. 

The NPAS are at a 13-year low. Massive digital transformation is increasing penetration into semi-urban and rural markets. 

Fintech adoption and regulatory reforms are making it a key driver for growth with promising mid- to long-term returns.

What are your preferred picks from the banking space?

For the past 18-24 months, investors have not been very interested in the banking space.  

With a high PE (price-to-earnings ratio) and slow growth rates, most analysts have taken a cautious stance. But things seem to be changing since the beginning of 2025. Q4 of FY25 saw growth in retail loans, corporate credit demand is picking up, SME advances have grown, and affordable housing finance has shown strong potential. 

This has created an opportunity window to look at banking stocks with a 2-3 year horizon. My pick will be ICICI Bank, which has shown robust growth in advances and deposits. ICICI’s net interest margin (NIM) stood at 4.41 per cent, which is great for a large bank. It has maintained a sharp focus on its operational efficiency, kept its credit cost low and ensured the asset quality remains high on its loan books. 

The loan-to-deposit ratio is also healthy at 82.4 per cent. These vital signs show that the bank is moving into a growth phase and is well-positioned to cater to India’s financial demands.

What is your outlook for gold prices? Is it time to increase exposure to gold?

Gold has been one of the most exciting investments to follow in the past 24 months. 

It has given a return that nobody expected and one that has surpassed many indices and proved a lot of analysts wrong. 

It has doubled in the last 4 years, giving a CAGR return of 19 per cent, while the Nifty 50 gave a return of 14 per cent. 

Gold prices always benefit from global uncertainty, and we have seen plenty of that recently. 

My outlook is that in the coming six to nine months, we could see gold prices moving up. 

The tariff wars will most likely have some undesirable results, and geopolitical tensions will continue for the short to mid-term. 

In this scenario, gold is likely to gain and be a safe haven for investors. 

On the investment side, I would recommend that those already invested may not need to increase exposure, as they will most likely increase their average price. 

Still, those who don’t have gold in their portfolio can add some for diversification, as it could act as an insurance policy if the tariff wars continue for longer than expected.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.