Lumpy valuations and slower EPS growth could cap market upside: Viraj Gandhi of SAMCO MF

Markets may not be headed for a runaway rally just yet, says Viraj Gandhi, CEO of SAMCO Mutual Fund. With stretched valuations and moderated earnings growth, equities could remain range-bound in the near term. A sustained bull run, he warns, will need stronger fundamentals, supportive macros and a reset in valuations.

Edited excerpts from a chat:


Markets are dancing near lifetime highs. How much of this is driven by fundamentals and how much by FOMO?
Equity markets have observed a sharp rally due to the resolution of the Trump tariff issue. The current sharp rise in the markets is a function of extreme pessimism due to anticipated implications of tariff war. However, the looming issues such as geopolitical tensions and economic slowdown globally still persist. Thus, one needs to gauge the scenario with equanimity to make informed decisions.


What's your reading of retail investor behaviour right now? Have most of them learnt lessons after playing with fire by chasing SME and momentum-heavy smallcaps?
The Post COVID boom in the equity markets has led to the emergence of heightened activity in SME and small-cap stocks especially due to the entrance of a new set of investors. These new breed of investors now active in the markets, haven’t seen a bear market cycle like the 2008. And the extremism of that market isn’t the same as the correction in the markets that we have witnessed since the past few months. There is a likelihood that this new age category of investors could face the brunt of being invested in the wrong stocks at the wrong time. But when that will happen is anybody’s guess. As far as momentum led stocks are concerned, if done under the guidance of robust systems, discipline and risk management mechanisms, generate good risk adjusted returns in the long term. A number of active and passive fund managers have time tested strategies in place to guide a retail investor especially during turbulent times.


Operation Sindoor has also worked like an international defence expo showcasing the might of Indian defence companies. This is also reflected in the dramatic movement in share prices. How strong is the defence story on Dalal Street?
The defence sector would continue to gain strength due to the focus of the government on indigenisation and strengthening of India’s defence system. The sector would observe continued focus by the government due to its national importance. In terms of allocation of the sector to the portfolio, one must align the capital with players that exhibit strong manufacturing and research capabilities to ensure sustained growth and profitability in the longer run.


With valuations stretched in certain pockets of the market, do you think the Q4 earnings season was strong enough to justify the rally that we are seeing?
The last quarter of the financial year was marked by a mixed earnings show with certain parts of the markets exhibiting extremely strong growth while the other exhibited a relatively slower earnings growth profile. However, the rise in the equity markets in the near term was a function of two factors - an overall steady earnings growth and the reversal of extreme pessimism built into the prices due to the Tariff War.


As an investor today, would you back consumption, capex, or financials in FY26?
The Indian equity market provides wide range of opportunities present across different sectors. There are several opportunities available across themes listed above, however one needs to be selective in terms of valuations, growth and the part of the value chain in which the company operates in a sector. As far as backing a particular theme is concerned, we are bullish on financials and consumption as a theme to pick up pace if everything in the economy falls in place.


Given current earnings momentum, macro tailwinds, and political stability bets, is Nifty 30,000 a realistic target by end of FY26?
A 30,000 kind of a number with the geopolitical issues out there and India’s issues with its neighbours seem to be a tough mark to reach by the end of FY26. The current scenario points towards a moderated EPS growth and given the valuations are still lumpy, markets could see some more time correction. Once the fundamentals, macros and valuations are aligned only then can we witness another outsized bull run. Until then it could be more of a range bound move till the previous highs.


Investors have been caught between two battlefronts lately — the global trade tariff war and the near war-like tensions between India and Pakistan. Now that both seem to be easing, what are the key takeaways for investors from this double dose of geopolitical anxiety?
The key takeaway for investors would be to ensure there is an effective hedging mechanism in place to protect the downside risk of their portfolio. During times of turbulence and uncertainty, downside protection discipline ensures lower volatility and better investor experience.