Listed corporate earnings in India are growing faster than Indias overall growth due to the factors discussed above

Investors need to lower their return expectations: Amit Ganatra of Invesco Mutual Fund We believe that earnings growth is a very important factor that can drive long-term wealth creation for investors. However, incrementally, growth is moderating due to the catching up with base, moderating credit growth, as well as the impact of global slowdown, says Amit Ganatra Head of Equities, Invesco Mutual Fund

This is because in the current environment, where the earnings growth is moderating incrementally, the scope for PE rerating is limited, Amit Ganatra, Head of Equities, Invesco Mutual Fund tells ET Wealth.

#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} How are you reading the current market scenario? Is the buoyancy likely to persist on the back of expected interest rate cuts?
Market conditions have to be evaluated on the basis of macro outlook and earnings outlook. India’s macro outlook has strengthened in the past few years due to an improvement in the fiscal and current account deficits, and health of balance sheets in the corporate and banking sectors. This has happened at a time when the overall macro conditions for many large economies in the world are either deteriorating or, at best, remain steady. So, in that context, India is demonstrating macro outperformance to the rest of the world.

On top of that, India’s business cycle is a beneficiary of credit upcycle, leading to improved growth outcomes compared to the past. Listed corporates in India are also beneficiaries of positive trends, such as revival of investment demand, market share gains from unorganised to organised sectors, higher level of inflation leading to higher nominal growth, emergence of manufacturing as a net new growth driver, digitisation, and financialisation of savings. As a result, listed corporate earnings growth is currently outpacing the overall national growth, and India is experiencing a broad-based earnings recovery. All the above factors are driving the capital market buoyancy. Some of the above factors are long term in nature and, hence, make us constructive on corporate India’s growth outlook. However, a lot of future earnings buoyancy, as well as events such as interest rate cuts, seem to be priced into the current valuations, moderating the risk-reward outcome.

Is corporate earnings growth enough to justify the current valuations? How are the next few quarters likely to shape up?
Listed corporate earnings in India are growing faster than India’s overall growth due to the factors discussed above. We believe that earnings growth is a very important factor that can drive long-term wealth creation for investors. However, incrementally, growth is moderating due to the catching up with base, moderating credit growth, as well as the impact of global slowdown. Hence, in a moderating earnings growth environment, the scope for PE rerating is limited and investors need to lower their return expectations.
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What do you make of the current frenzy in the IPO space? Do you see good offers coming through?
IPOs help in expanding the breadth and diversity of the market. They also enable us to identify unique businesses with strong fundamentals. However, since the number of IPOs has gone up in recent years, we apply additional filters and prefer companies with differentiated business models that are not available in the existing listed universe, business moats stronger than peers in the listed universe, and compelling valuations, leaving a lot on the table for participating investors.

Invesco MF has recently launched back-to-back thematic funds. Why are you backing manufacturing and technology at this point?
We focus on the NFOs that we think offer an opportunity for wealth creation, such as the small-cap fund in 2018 and flexi-cap fund in 2022. Recent launches like the manufacturing fund and the technology fund, follow the same rationale.

Companies in the manufacturing space are beneficiaries of India’s focus on import substitution, global shifts in supply chain, improved viability through PLI, and India’s rising competitiveness in manufacturing. Companies in the technology space are beneficiaries of rising global tech adoption making technology the new staple, beginning of global rate cut cycle led by the US, improvement in earnings growth from October 2024 to March 2025, digitisation and India’s rising focus on tech hardware. After a long time, companies in India’s listed space are benefiting from multiple themes, as highlighted earlier. We believe investors can gain by having focused exposure to some of these themes.

Which are the other sectors or themes that you are favouring?
Our sectoral exposure is mandate-driven. However, we have increased exposure to the financial and technology sectors and reduced exposure to industrials due to profit booking. We remain underweight on energy and global commodities.

How are you navigating the mid- and small-cap arena now? Do you see enough runway for returns?
We are more focused on sustainability and longevity of growth, and quality of businesses, rather than evaluating companies based on their cap bias. There is always going to be a runway for good businesses ideated at right valuations.

With value segment in pole position in recent years, how are your equity funds positioned?
Our positioning between growth and value is mandate-specific. The contra and PSU funds have a greater focus on value. Other funds are a blend of growth and value, but with growth bias. All our funds continue to retain higher exposure to quality.

The Author is Amit Ganatra Head of Equities, Invesco Mutual Fund

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This story originally appeared on: India Times - Author:Faqs of Insurances