Handy at record highs, but midcaps lagging behind: Rupen Rajguru reveals the smartest sectors to buy now

India’s benchmark Nifty has hit new all-time highs, but the broader market continues to underperform, with the Nifty Smallcap Index still 11% below its peak. According to Rupen Rajguru, Managing Director and Senior Advisor at Julius Baer, ​​this divergence signals an attractive time for investors to accumulate stocks as India’s earnings cycle prepares for a rebound.Rajguru told ET Now that the Indian market has been in a consolidation zone for almost a year, with the Nifty trading around the same level as September 2024 and mid and small caps significantly lower. India has also underperformed globally – mainly due to six consecutive quarters of poor corporate profits.

Earnings momentum will strengthen from FY27 onwards

Despite the moderate gains so far, Rajguru expects a sharp turnaround.

• Nifty earnings rose only 5-6% in FY24
• FY25 could end with 7-8% earnings growth
• FY27 is expected to deliver growth of over 15%, marking a decisive shift in trajectory

“With earnings set to rise, now is the time to add Indian equities to portfolios,” he said.

Top sectors to buy: banking, consumer and consolidated industries

Rajguru sees strong opportunities in three key themes:

1. Banking and financial sector

Earnings growth for banks is expected to remain strong, with mid-market banks likely to outperform as credit growth increases and asset quality remains healthy.

2. Consumption and discretionary expenditure

Government stimulus – through tax cuts, GST rate cuts and RBI rate cuts – will keep more money in the hands of consumers. Discretionary consumption and rural demand are expected to improve further.

3. Sectors that have undergone consolidation

In sectors such as aviation, telecom and cement, competitive intensity has decreased, improving pricing power and margins.

The automotive sector is entering a multi-year upcycle

Automobiles, after nearly a decade of inertia, are at the beginning of a new growth cycle, Rajguru noted. Cuts in VAT, falling EMIs and a strong rural economy are supporting demand.

• Passenger cars are his top choice.
• Two-wheeler manufacturers with a strong EV play also stand out.
• M&HCVs are showing early signs of revival.

IPOs: high valuations but positive long-term impact

Rajguru declined to comment on specific IPOs but said the rise in primary market activity is healthy for Indian capital markets.

New-age companies in solar energy, digital platforms, consumer technology and manufacturing are deepening market breadth and providing private equity funds with strong exit opportunities, driving future investment flows.

MPC outlook: interest rate cut possible, but timing uncertain

On the upcoming RBI policy, Rajguru said a rate cut may be postponed due to strong GDP data, but a 25 basis point cut could still happen later in the February meeting.

For banks and NBFCs, he expects:

• NIM compression to stay within limits
• Credit growth will accelerate, led by large banks and high-quality NBFCs
• Credit costs remain low

“As credit growth picks up and margin pressure eases, lenders with stronger growth engines will perform better,” he added.