Stock Market Valuations Show Signs of Normalization, Expect Moderate Returns Ahead: Avinash Agarwal of Bandhan Life

Market Update: Navigating Volatility in Indian Equities

Key Points:

• The Indian stock market has experienced a sharp decline due to heightened volatility driven by the US-Iran war, soaring crude oil prices, and tariff tensions.
• Avinash Agarwal, Head–Equity at Bandhan Life, advises investors to maintain discipline and invest consistently, regardless of market conditions, to compound wealth over time.

Market Impact:

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• Brent crude prices are hovering near $100, which may have a prolonged impact on India Inc. if sustained for an extended period.
• The impact of crude oil prices on the economy has reduced materially since 2011-14, as India's economy has grown faster than its oil consumption.

Sector Opportunities:

• Domestic economy-related sectors offer attractive risk-reward opportunities, with the credit cycle still good and banks expected to perform reasonably well.
• The consumption sector may see a positive uptick in demand, driven by government incentives.
• Midcap and smallcap stocks have corrected, making valuations more reasonable, and investors should consider this segment for medium- to long-term growth.

Earnings Season:

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• Q4 FY26 earnings will be impacted by the US-Iran war, particularly in sectors like travel and tourism, infrastructure companies, and others.
• Results may be mixed, with some sectors gaining while others may be adversely affected.

Valuations and Growth:

• Midcap valuations are more reasonable after the recent correction, and investors should consider the PEG ratio (P/E divided by growth) to assess value.
• The IT sector has seen a reasonable correction and may present a bottom-fishing opportunity, but investors should be cautious due to the challenges posed by Artificial Intelligence.

FII Triggers:

• The return of Foreign Institutional Investors (FIIs) to the Indian equity markets may be triggered by a combination of factors, including a resolution to the US-Iran conflict and a stabilization of global markets.