Stock Picker's Market — Ridham Desai's Formula To Pick The Right Companies

India's equity market is entering a decisive phase, one where stock selection will matter more than ever, according to Ridham Desai, managing director at Morgan Stanley India. Speaking to NDTV Profit, Desai said the current market environment signals the arrival of a classic "stock picker's market".

"The correlation of individual stocks with the Nifty is at a peak right now," Desai noted, referring to a technique he uses to track how much of a stock's movement is explained by overall market trends. "When correlation rises, it indicates that stocks are largely influenced by the broader market. But when it falls, stocks start behaving idiosyncratically. The peak often signals a turning point, when macro factors cease to affect stocks, and the market becomes a stock picker's market."

Desai believes the coming 12 to 18 months will favour those who can identify companies on the strength of their fundamentals, rather than riding sectoral or macroeconomic waves. "You become agnostic to market cap, agnostic to sectors," he said. "The past several months have been a macro market, where midcaps and small caps did very well, and you could make big sectoral bets. But now, the strategy should shift. Hug the benchmark, don't make sector calls, and instead make big stock calls."

His framework for evaluating stocks remains rooted in classic investing principles. "The first criterion always is: Who are you partnering with?" He said, stressing the importance of management quality. "Second is: What type of business are you buying—is it overvalued, is it a sunset industry?"

Invoking legendary investor Charlie Munger's advice to Warren Buffett, who initially leaned toward undervalued, lower-quality "cigarette butt" investments, Desai quoted, "It's okay to buy a good quality business and pay up for it, because in time, the good quality business will deliver returns and you will come out on top. That is the philosophy you should have when you subscribe to individual stocks."

On the macro front, Desai was optimistic about India's resilience amid global volatility. "India is measurably better than the rest of the world, and its growth is unlikely to slow down significantly," he said. "India is not a small-cap stock—it's a relatively large economy. It's actually going to be contributing maybe 20% to 25% of global growth in the next 12 months."

While acknowledging a possible slowdown in fiscal 2026 compared to the "bumper" fourth quarter of the previous fiscal year, Desai emphasised that India remains on stronger footing than many other economies. "We're not completely shielded from global uncertainty, but we're in a better position and likely to remain a key driver of global growth in the near term," he said.