Banking sector a bright spot amid valuation concerns: Mahesh Nandurkar

"Demand has been good, but the equity paper supply has also been very strong. So, keeping all these factors in mind, I would say most likely outcome over the next six to nine months would be a sideways movement in the market," says Mahesh Nandurkar, HoR & MD, Jefferies.

What is your view on the market? Is this as good as it gets? You think it is a matter of time what is looking okay will start looking not okay?
Mahesh Nandurkar: Yes, I think that a lot of good news is priced in as we speak and the market sentiment as of now, a lot of market momentum indicators, sentiment indicators, look to be pretty good at this point in time. But if we take a 6-month, 9-month, 12-month view, very difficult to take a bullish call on the broader market, I would say, at this point in time given the combination of the kind of valuations that we are in, looking at the earnings growth, and also the other factor which is the demand-supply equation for equities. Demand has been good, but the equity paper supply has also been very strong. So, keeping all these factors in mind, I would say most likely outcome over the next six to nine months would be a sideways movement in the market.

What is your view in terms of where the market leadership is and how things are moving in terms of the earnings trajectory?
Mahesh Nandurkar: See, the earning trajectory we are looking at this year FY26 is, as of now the expectations at around 10-11%, next year is slightly better at 13-14%. But as we always know that this is the expectation as of now and during the course of the year there is a good chance that we see these expectations getting revised downwards. Also, the other factor that we will need to keep in mind is the nominal GDP growth. This year FY26, the nominal GDP growth is likely to be in the range of around 9% or thereabouts and that is because the real GDP growth is 6.5, but then the inflationary environment is quite subdued which is a good news for an average consumer. But when we look at what that implies in terms of the broader corporate revenue growth and corporate earnings growth, it means that those numbers are not going to look as strong as they did, say, over the last couple of years.

We would end up the year maybe at around 10% or maybe lower than that for this year and about, say, 12-14% next year. And if you contrast that with the valuations, I mean the broader market valuations are about 21-22 times, but those valuations look reasonable because of the banking and financial sector which is a very large part of the index where the valuations are actually very attractive and that remains one of our top overweight sectors at this point in time. But if you were to look at outside of the banking sector, the multiples are in the range of 25-26 times on an average. So that is what I mean when I talk about earnings growth versus valuation equation is not looking like the best.

Help us understand that how is the macro data shaping up because for now the markets are standing tall, but if we look at some of the internals when it comes to the GDP growth slowing down, when it comes to the GST collections where we have seen a sharp moderation from those April levels as well, and add to that is the slowdown in the auto sales data. What is these data points telling you right now of the situation of the economy and its implication maybe on the markets?
Mahesh Nandurkar: So, the thing is, the fact that the month of June is not looking that strong was something that we were expecting because as we all remember this time around, during this monsoon season, we saw the monsoon starting about 8 to 10 days earlier and we all know that during the rainy season the power demand, the construction activity, the cement demand, and a few other things actually do slow down. So, in that context the early onset of monsoon while that is a great news for the broader economy as such, but it does have a negative impact on the June quarter and which is what we are seeing as we speak. As a contrary, the September quarter is likely to be a very strong quarter for multiple reasons. One is that we had a very low base first of all of the last year September quarter. Secondly, there was also an excessive rains that impacted the last year's September quarter and again, we have Diwali which is early by about 8-10 days earlier and so on. So, there are some of these small factors which are depressing the June quarter and which will appropriately inflate the September quarter.

So, there are those like near-term quarter-to-quarter variations, but yes, as I mentioned, if you look at on a full-year sort of basis FY26, the fact that the nominal GDP growth is going to be one of the lowest numbers that we have seen in the last 15 years barring the covid years, of course, would mean that the broader growth expectations whether it is credit growth, whether it is GST numbers as you mentioned, or the corporate revenue growth, earnings growth, we have to have a moderate view and that is what the reality will be in my view.