Equitree Capital’s Pawan Bharaddia forecasts a shift towards earnings-driven returns, highlighting the need for selective investment amid evolving market valuations and external risks such as crude oil prices.
Pawan Bharaddia, co-founder and chief investment officer at Equitree Capital Advisors, says the next six to 12 months are likely to reward stock-picking more than simple exposure to Indian equities. He argues that the easy gains from valuation re-rating are largely behind the market, and that future returns will depend far more on earnings delivery than on a broad move higher in prices.
Bharaddia is constructive on India’s economic backdrop, pointing to stronger corporate balance sheets, firmer credit growth and a Reserve Bank of India forecast that implies 6.7% GDP growth in FY27, with inflation seen at 5% and the repo rate left unchanged at 5.25%. Even so, he believes the market is no longer cheap enough to justify paying almost any price for growth.
Crude oil remains the biggest external risk. With Brent around $88 a barrel, Bharaddia says a sustained move towards $95-$100 would filter through inflation, the current account, the rupee and corporate margins. He also sees global liquidity as a secondary influence rather than the main driver of Indian earnings, noting that foreign investors returned to the market in July but remain net sellers for the year.
His valuation work suggests the opportunity has shifted further down the market-cap curve. Large-cap shares offer greater liquidity and visibility, but they are not especially inexpensive. Mid-caps, he says, look stretched, while select small- and micro-cap companies in the ₹1,000 crore to ₹5,000 crore range still offer room for genuine mispricing.
That does not mean small caps are cheap as a category. Rather, Bharaddia says the better opportunities are businesses that can compound earnings at more than 20%, maintain strong balance sheets and still trade at sensible valuations. In an earlier interview with Business Standard, he said the real risk in this part of the market is execution, governance and management depth, not simply valuation.
He is also reading the latest corporate results as a sign that the earnings recovery is widening, though not evenly. Data cited by Equitree from 838 listed companies showed revenue growth accelerating in the latest quarter, with operating margins holding up outside oil and gas and net profit rising by more than 20% year on year. Sectors tied to consumption, autos, consumer durables and retail have shown healthier demand, while IT, some exporters and a few cyclical industries remain under pressure.
The broader investment themes he prefers are import substitution, manufacturing gains, infrastructure, industrial ancillaries and selected consumer plays. Yet he warns that a good theme is not the same as a good investment. Some capex-linked sectors already trade at sizeable premiums to their own history, which means the market is assuming years of near-perfect execution.
Equitree’s approach, Bharaddia says, is closer to private equity than traditional small-cap investing: buy growth only when the price leaves room for error. For him, debt remains useful for stability, gold for protection and cash for flexibility, but equity still offers the best long-term compounding potential. The difference now is that investors need to be far more selective about which businesses deserve that capital.
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