Bandhan AMC's Manish Gunwani Bets On Large-Cap Stocks Amid Valuation Concerns

“I think the large cap segment is obviously a mature segment, fairly reasonably valued, giving you steady returns. I don't think we should expect them to have gangbusters earnings,” the equity expert added.

Gunwani suggested looking at the valuation scenario in a broader macro context. According to him, India's currency position is stronger than ever, with a near-zero current account deficit. This structural change lowers the cost of equity. As a result, higher PE multiples may be sustainable over the long term.

"People are seeing the Nifty 100 PE and saying, 'Oh, it's 10–15% higher than last year'. First of all, I don't think the Nifty 100 is the core of this market. Secondly, I believe India's currency has probably never been in a better position since Independence," Gunwani said.

"So, in my view, these high PE multiples will be sustained on a cyclical basis. Sure, we will see six months of correction, six months of rally, but over the next 5-10 years, I would argue that rupee assets will trade at higher valuations than in the past decade,” he explained.

For small caps, Gunwani believes that it is a "fair expectation" that they will outperform large caps over the next three to five years.

On handling investor expectations, Bandhan AMC CEO Vishal Kapoor noted that while there has been volatility and concentration in sectors, the broader investor base is becoming more mature and resilient.

"There’s always one end of the market looking at the last six months or one-year returns and jumping in based on that. That said, I believe the larger market is definitely much more resilient and mature," Kapoor said. "That’s what we mean when we talk about the breadth of exposure."

"When you look at investor behaviour over time, maybe 15-20% of the market shows that short-term mindset, but I think the bulk of the market is still in a reasonably good place,” he added.

On this, Gunwani added that while Nifty earnings were significantly above nominal GDP in the last five years, such high growth isn’t sustainable in the long term. He believes large caps will offer steady, mature returns but not high growth.

Current pockets of growth lie in sectors serving the top 10% of earners, like real estate and aviation, according to Gunwani.

"I think affluent consumption will do very well. I'm not so keen on penetration-led consumption. Second, India is becoming a major hub for medium- to high-end goods and services," he said.

"The West has an aging population and skilled people are hard to find. So, we like segments where there’s some engineering or R&D involved. Third is financialisation. I think people will move away from savings accounts to more capital market-oriented products," he predicted.