ETMarkets Smart Talk: Valuations remain above historical averages; stock-picking key in mid- and small-caps, says Vikram Kasat

In an exclusive conversation with ETMarkets Smart Talk, Vikram Kasat, Head – Advisory at PL Capital, said that while valuations in Indian equities have eased from peak levels, they still remain above long-term averages, making it a stock-picker’s market.

He believes that mid- and small-caps require a more nuanced approach as pockets of froth exist alongside several quality names undergoing earnings upgrades.

Kasat highlighted that in the current environment, selective exposure and disciplined investing will be crucial for generating returns. Edited Excerpts –

A) This move certainly introduces fresh uncertainty, especially for export-focused sectors like pharmaceuticals, textiles, and specialty chemicals, which have built meaningful exposure to the U.S. market.

In the near term, the impact may be sentiment-driven, but if sustained, such tariffs could dent margins and force Indian exporters to reconfigure supply chains or explore alternative markets.

That said, Indian Inc. has demonstrated strong resilience in the past through diversification and value-added manufacturing. The broader economic impact will hinge on how long these tariffs persist and whether any reciprocal measures follow.

Q) Do you think, with external headwinds, the process of generating alpha will be more challenging?

A) Without a doubt, the current global macro environment—rising geopolitical tensions, tighter liquidity, and trade frictions—raises the bar for alpha generation.

Passive strategies may struggle to keep pace, putting a premium on active management and stock picking. Alpha will likely come from selective exposure to domestic plays with strong earnings visibility, sectoral rotations, and companies demonstrating pricing power and robust balance sheets.

This is a market for active managers who can navigate volatility and uncover mispriced opportunities.

Q) How are you reading into June quarter results of India Inc.?

A) The June quarter earnings were a mixed bag. On one hand, we saw strong numbers from sectors like banking, auto, and capital goods—backed by healthy credit growth, rural recovery, and robust capex activity.

On the other hand, consumer staples and IT showed margin pressure due to input costs and weak global demand, respectively. Overall, earnings growth has held up, but the breadth of beats versus misses has narrowed.

Going forward, management commentary suggests cautious optimism, which aligns with our view of a soft landing for India Inc., at least in the medium term.

Q) What is your call on valuations? We have seen some moderation from all-time highs, but can we say that we are in the attractive zone?
A) Valuations have indeed come off slightly from the frothy levels seen earlier this year, but they remain above long-term averages, especially in sectors like consumer and financials. While we may not yet be in “cheap” territory, the risk-reward has improved selectively.

Mid- and small-caps, in particular, require a more nuanced view—there are pockets of froth, but also several high-quality names undergoing earnings upgrades.

This is a stock-picker’s market; index-level valuations might appear stretched, but opportunities exist beneath the surface.

Q) Foreign institutional investors have unleashed a brutal $4.17 billion selloff across five key sectors in July. FIIs turned net sellers to the tune of Rs 17,741 crore last month. Should Indian investors be cautious?
A) The FII selloff is concerning but not unprecedented. Much of it seems driven by global risk-off sentiment, rising U.S. yields, and a reallocation toward other emerging markets.

Historically, such phases have been temporary. What’s more important is that domestic institutional investors and retail flows continue to remain strong, acting as a counterbalance.

Indian investors should not panic but rather stay disciplined. Corrections induced by FII selling often present long-term buying opportunities for those with a 3–5 year horizon. Being cautious doesn’t mean being inactive—it means being selective and sticking to quality.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)