- Large-cap stocks appear cheap but lack earnings growth, says Helios Capital CEO
- Large-cap sectors like IT, FMCG, and commodities face growth challenges
- Foreign investors diversify beyond top 10 stocks amid earnings concerns
Large-cap stocks may look inexpensive on headline valuations, but lack of earnings growth is limiting their appeal, according to Dinshaw Irani, CEO of Helios Capital.
Irani said the issue with large caps is not the broader economy, which he described as growing at a decent pace, but the composition of the large-cap universe. IT services, FMCG and commodities are facing growth challenges, while banks have seen some improvement but remain constrained by structural issues.
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“If there is no growth, what valuation can you justify,” Irani said, pointing to large caps trading at around 16-17 times forward earnings. He said the most bullish projections for the NSE 100 imply roughly 11-12% earnings growth, while the median expectation is closer to 8-9%.
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That earnings gap is also influencing foreign investor behaviour. Irani said the share of the top 10 FPI holdings fell from around 41% of their India exposure in March 2022 to about 21% by March 2026, while the number of stocks in which FPIs held more than 1% increased from roughly 900 to more than 1,300.
According to Irani, this shows that foreign investors are increasingly looking beyond the biggest stocks for growth rather than simply focusing on valuations.
Financials Still A Key Area, But Selectivity Matters
Irani remains constructive on financials over the longer term, particularly because economic growth requires financing for consumption and wealth creation. However, he said banks face challenges around net interest margins, CASA compression and fee income, amid increasing competition from fintechs and wealth managers.
He said Helios remains selective within private-sector financials and is looking for businesses capable of growing alongside the economy.
For the broader market, Irani identified crude oil as the key macro overhang, rather than the monsoon. He said one weak monsoon could be absorbed given India's reserves and that cropping had not taken a major hit. But sustained crude prices above $100 could eventually pressure consumption and the global economy.
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